Arguments

‘Homo Economicus’ Must Die

Nick Hanauer’s rousing speech on the lies on which neoliberalism is built.

By Nick Hanauer

Tagged BusinessEconomicsHumanism

This piece is adapted from a speech delivered September 30th at MIT, where Nick Hanauer won the 2018 Harvard and MIT Humanist of the Year award. Read more about the award, as well as Editor Michael Tomasky’s Q&A with Hanauer, here.

I’m thrilled to receive this award from such distinguished hosts—but I won’t lie: When I was told I would be honored as the “Humanist” of the year, the first thing I did was double-check the definition to make sure it was a good thing. And here I am. So—thanks!

As a person who comes from three generations of non-practicing, non-religious Jews, what you “are” can be somewhat confusing. I’ve never been comfortable with the conformity of organized religions, nor their traditions and rituals. And I never was impressed by moral reasoning that went something like “do the right thing, or we’ll burn your ass in Hell for all eternity.” I was often at a loss to culturally and morally locate myself. One of my friends used to call me a “WASP Jew.” Now you folks tell me I’m a “humanist.” Who knew?

Mostly in life, we are judged purely for our actions and accomplishments. And I have been honored in that way before: as a successful capitalist and as a philanthropist and for my civic activism. But this award is more interesting and personally gratifying because in this case, why I do what I do is as important as what I do, and for this I am deeply appreciative.

To me, the great attraction of humanism is not that it holds us to a higher standard, but that it asks us to hold ourselves to a higher standard. It’s relatively easy to do the right thing because of a looming reward or punishment—even in an afterlife. It is much harder, and therefore more meaningful, to do the right thing simply because it is the right thing to do—particularly if doing the right thing appears to involve personal trade-offs in the here and now.

But more consequentially, the more I have come to understand market capitalism, both as a practitioner and as a student of economic theory, the more I have come to understand that this humanist ethos is a prerequisite for human prosperity itself.

I did note that I am the first capitalist to be honored with this award. I suspect that this may be because you all view the world I inhabit, the world of business and economics, as somewhat “morally challenged.” To be clear, contemporary American business and economic culture does have a moral framework: neoliberalism. But I think it is safe to say that this framework is dependably orthogonal to the last 50,000 years of moral norms and traditions.

Is that too harsh? Maybe. But the canonical moral expression of modern capitalism—“It was a business decision”—has far more in common with The Godfather than with The Golden Rule. Let’s be honest: Whenever you hear somebody say, “It’s not personal, it’s strictly business,” you know that really terrible things are about to happen.

It is a sign of the times that one of the best-known moral claims by an American business is Google’s: “Don’t be evil.” At least they have one.  But it is interesting to reflect on. Put aside whether Google has lived up to its credo or not. How did we get to the point where the highest standard a business will hold itself to is simply the absence of evil?

And how did we get to a so-called “ethics” of business that insists that the only affirmative responsibility of a corporate executive is to maximize value for shareholders?

I believe that these corrosive moral claims derive from a fundamentally flawed understanding of how market capitalism works, grounded in the dubious assumption that human beings are “homo economicus”:  perfectly selfish, perfectly rational, and relentlessly self-maximizing. It is this behavioral model upon which all the other models of orthodox economics are built. And it is nonsense.

The last 40 years of research across multiple scientific disciplines has proven, with certainty, that homo economicus does not exist. Outside of economic models, this is simply not how real humans behave. Rather, Homo sapiens have evolved to be other-regarding, reciprocal, heuristic, and intuitive moral creatures. We can be selfish, yes—even cruel. But it is our highly evolved prosocial nature—our innate facility for cooperation, not competition—that has enabled our species to dominate the planet, and to build such an extraordinary—and extraordinarily complex—quality of life. Pro-sociality is our economic super power.

Economists are not wrong when they attribute the material advances of modernity to market capitalism’s genius for self-organizing an increasingly complex and intricate division of knowledge, knowhow, and labor. But it’s important to recognize that the division of labor was not invented in the pin factories of Adam Smith’s eighteenth century Scotland; at some level, it has been a defining feature of all human societies since at least the cognitive revolution. Even our least complex societies, small bands of hunter-gatherers, are characterized by a division of labor—hunting and gathering—if largely along gender lines. The division of labor is a trait that is universal to our prosocial species.

Viewed through this prosocial lens, we can see that the highly specialized division of labor that characterizes our modern economy was not made possible by market capitalism. Rather, market capitalism was made possible by our fundamentally prosocial facility for cooperation, which is all the division of labor really is.

This dispute over behavioral models has profound non-academic consequences. Many economists, while acknowledging its flaws, still defend homo-economicus as a useful fiction—a tool for modeling and understanding the economic world. But it is much more than just an economic model. It is also a story we tell ourselves about ourselves that gives both permission and encouragement to some of the worst excesses of modern capitalism, and of contemporary moral and social life.

If we accept that it is true—if we internalize that most people are mostly selfish—and then we look around the world at all of the unambiguous prosperity and goodness in it, then it follows logically, it must be true, by definition, that a billion individual acts of selfishness magically transubstantiate into prosperity and the common good. If it is true that humans really are just selfish maximizers, then selfishness must be the cause of prosperity. And it must be true that the more selfish we are, the more prosperous we all become.  Under this logical construct, the only good decision is a business decision—“Greed is good”—and the only purpose of the corporation must be to maximize shareholder value, humanity be damned. Welcome to our neoliberal world.

But if, instead, we accept a prosocial behavioral model that correctly describes human beings as uniquely cooperative and intuitively moral creatures, then logically, the golden rule of economics must be the Golden Rule: Do business with others as you would have them do business with you. This is a story about ourselves that grants us permission and encouragement to be our best selves. It is a virtuous story that also has the virtue of being true.

I believe that prosperity is best understood as the accumulation of solutions to human problems. From curing cancer to a crunchier potato chip, every legitimate enterprise is in the problem-solving business, and because trade is reciprocal—you need a potato chip, I need a profit—every solution consumed is a mutual problem solved. But as our modern technological economy grows more prosperous, it’s problems inevitably grow more complex, and this requires ever greater degrees of social, economic, and technological complexity in order to sustain this virtuous cycle of innovation and demand.

Capitalism is the greatest problem-solving social technology ever invented. But knowing that capitalism works is different than knowing why it works. And contrary to economic orthodoxy, it is reciprocity, not selfishness that guides it—indeed—as if by an invisible hand. It is social reciprocity that builds the high levels of trust necessary for large networks of people to cooperate at scale. And it is only through these networks of highly-cooperative specialists that the complexity that defines our modern economy can emerge.

Dr. King said, “the arc of the moral universe is long, but it bends toward justice.” In the same way, thanks to the fundamental evolutionary logic of the market, the arc of the economic universe bends toward complexity. And these two arcs are just part of a larger circle that is anchored by justice, which creates the trust, that enables cooperation, which produces the complexity from which our prosperity emerges.

So this is the main point of my remarks: Properly viewed through this prosocial economic lens, we see clearly that it is our humanity, not the absence of it, that is the source of our prosperity.

But of course, in working to change the way we think about the economy, my ultimate goal is to change the way we act within it. And to this end, I’d like to close by offering four simple heuristics to guide your own actions and activism:

Heuristic number one: Capitalism is self-organizing, but not self-regulating.

The notion of market capitalism as a Pareto-optimal closed, equilibrium system is—to use the technical term—bullshit. Throughout the world, the most broadly prosperous capitalist economies are also the most highly regulated and highly taxed. To be clear: Government investment and intervention is not a necessary evil. It is just plain necessary.

Which leads us to heuristic number two: True capitalism is not shareholder capitalism.

The neoliberal claim that the sole purpose of the corporation is to enrich shareholders is the most egregious grift in contemporary life. Corporations are granted limited liability in exchange for improving the common good. Thus, the true purpose of the corporation is to build great products for customers, provide good jobs for employees, provide a fair return to shareholders and to make their communities stronger—in coequal measure.

Heuristic Three: Capitalism is effective, but not efficient.

Schumpeter’s “perennial gale of creative destruction” has proven extraordinarily effective at raising our aggregate standard of living, but it can also be extraordinarily wasteful, cruel, and unequal—unequal to the point that it threatens to destroy capitalism itself. If our economy and our democracy are to survive the ever-quickening pace of technological change, we must use every tool available to close “the innovation gap” between our economic institutions and our civic institutions.

And finally, heuristic number four: True capitalists are moral capitalists.

Being rapacious doesn’t make you a capitalist. It makes you an asshole and a sociopath. In an economy dependent on complex trust networks to facilitate the cooperative tasks from which prosperity emerges, and when prosperity itself is understood—not as money but as solutions to human problems—true capitalists understand that every economic act is an explicitly moral choice—and they act accordingly.

And so, to all the aspiring business and technology leaders in the audience today, I want to challenge you to adopt an alternative credo, far more ambitious—and more humanist—than Google’s “Don’t be evil”: “Be good.” Or maybe, “Always do the right thing.”

And when you do the right thing, do it with confidence that if it is the right thing to do for your customers, for your employees, for your community, and for the planet—then it is also the right thing to do for your shareholders.

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Nick Hanauer is a Seattle-based entrepreneur and venture capitalist, and the founder of Civic Ventures, a public-policy incubator.

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