Monday, 10 January 2011

Rational Vices, Good Ol' Business Logic And Power

I've just finished lapping up Dan Ariely's Predictably Irrational, an exploration of the systematic irrational behaviour of human beings.

The book is implicitly anti-corporate establishment, as it dishes out nugget after nugget of problems pertaining to the economic institutions of our global world. But perhaps it is not so implicit after all, because it attacks the most fundamental premise and stronghold of economics - that humans are completely rational beings. Yes, indeed humans are rational and thinking creatures, but dogmatic hardliner economists not only fail to account for the systematic irrationalities of humans (such as fear, anger, perceptual biases, etc, which time and again falsify economic theory) but, even worse, often deliberately omit these irrationalities to preserve the elegance of the theory (arbitrage, anyone?).

This completely flies in the face of science and knowledge, because while it is perfectly fine to encounter scenarios that oppose the logic of established theories, those inconsistencies must be addressed and put to good use to further refine what we already know. What's worse is that many of our global economic and financial institutions are designed around such narrow economic principles, and whole societies are expected to fit into those institutions. It comes as no surprise that we have economic failures, because the rationality of classical economics and humans are, to put it straightforwardly, incompatible at some important parts.

Dan Ariely gives some interesting case studies to support his argument. For instance, studies on salaries and bonuses show that huge paychecks do not guarantee better performance. So, on what grounds are bankers justifying their huge salaries? The commonplace argument is that high salaries are needed to ensure that the best men are retained for the job (or else they will move elsewhere), but this is precisely the standard free market logic that Dan Ariely strives to assert is highly flawed. So when the US$700 billion bailout package went straight back into the pockets of the people running and messing up the financial institutions, it is obviously offensive to millions of taxpayers, but what can they do against an economic logic of salary-performance that is virtually accepted as a natural law? (For more interesting findings, I strongly suggest reading the book.)

Reading The Corporation by Joel Bakan does little to placate any already-existing (and growing) sentiments I have about the state of our financially globalized world now. The corporation began in the late seventeenth and early eighteenth centuries in America and Britain as corporate entities ran by stockbrokers who sought to make money via speculation. Most of these corporate entities failed, leading to loss of livelihoods, and their respective governments were quick to persecute these stockbrokers. However, after Thomas Newcomen invented the steam engine and unwittingly kickstarted the industrial revolution (yes, Joel Bakan brilliantly uses the term 'unwittingly'), corporations were revived because they were the only organized entities that could generate the huge amounts of capital needed to drive industrialization and production.

In the span of 300 years, the power balance has switched in favour of the corporation today. What started out as a damned organization that could be shut down at the whisk of a commissioner's pen, corporations today pervade every aspect of our lives and significantly control society and politics.

I digress, but in some ways I see this as similar to how sociologists trace the rise of male dominance and female oppression - capital accumulation. Because there are sociological and biological conditions under which men end up driven to accrue resources (extrinsic value) in exchange for the intrinsic value of women (in a most basic sense, reproductive capability), women in general rely on the resources that men provide and, in most patriarchal societies, become structurally dependent on men's resources.

Joel Bakan's argument sounds quite similar in that the world today hugely depends on the immense capital that can be accrued by corporations, and we are as reliant on the provisions of corporations as corporations are pervasive. Joel Bakan's angst comes from how little check and balance there is against the power of a organizational entity that is fundamentally not concerned with the welfare of society as much as it is concerned with profits.

I will eventually hope to end up in academia and presumably become a psychology researcher given my interest in the behaviour and psychology of the individual (and belief that understanding the individual will provide much insight into the issues of our world). However, my interest in philosophical, moral and social aspects also suggests otherwise; that I can't be a psychologist purely. The tendency for psychological academia to think of moral constructs as beyond the scope of psychology cannot be satisfactory to my curiosities. It is a dream that I can one day do some work that crosses the disciplines of psychology, sociology, politics, philosophy and anthropology.

Also, all the reading I'm doing, and my interests and drives, clearly makes me a heretic in SMU. Thank goodness I'll be ending my undergraduate term (and irrelevant university core modules that have only served to mess up my GPA, under which my academic capability will be cruelly judged boohoo) in a few more months.

No comments: