23 Things They Don't Tell You About Capitalism

To free-market economists, public officials – politicians and government bureaucrats – pose a unique challenge in this regard. Their pursuit of self-interest cannot be restrained to any meaningful degree because they are not subject to market discipline. Politicians do face some competition from each other, but elections happen so infrequently that their disciplinary effects are limited. Consequently, there is plenty of scope for them to pursue policies that heighten their power and wealth, at the cost of national welfare. When it comes to the career bureaucrats, the scope for self-seeking is even greater. Even if their political masters, the politicians, try to make them implement policies that cater to electoral demands, they can always obfuscate and manipulate the politicians, as was so brilliantly depicted in the BBC comedy series Yes, Ministerand its sequel, Yes, Prime Minister. Moreover, unlike the politicians, these career bureaucrats have high job security, if not lifetime tenure, so they can wait out their political masters by simply delaying things. This is the crux of the concerns that the World Bank economists were expressing in the meeting in Japan that I mentioned at the beginning of this Thing.

Therefore, free-market economists recommend, the portion of the economy controlled by politicians and bureaucrats should be minimized. Deregulation and privatization, in this view, are not only economically efficient but also politically sensible in that they minimize the very possibility that public officials can use the state as a vehicle to promote their own self-interests, at the cost of the general public. Some – the so-called ‘New Public Management’ school – go even further and recommend that the management of the government itself should be exposed to greater market forces: a more aggressive use of performance-related pay and short-term contracts for bureaucrats; more frequent contracting-out of government services; a more active exchange of personnel between the public and the private sectors.

We may not be angels, but…

The assumption of self-seeking individualism, which is at the foundation of free-market economics, has a lot of resonance with our personal experiences. We have all been cheated by unscrupulous traders, be it the fruit seller who put some rotten plums at the bottom of the paper bag or the yoghurt company that vastly exaggerated the health benefits of it products. We know too many corrupt politicians and lazy bureaucrats to believe that all public servants are solely serving the public. Most of us, myself included, have goofed off from work ourselves and some of us have been frustrated by junior colleagues and assistants who find all kinds of excuses not to put in serious work. Moreover, what we read in the news media these days tells us that professional managers, even the supposed champions of shareholder interest such as Jack Welch of GE and Rick Wagoner of GM, have not really been serving the best interests of the shareholders (see Thing 2).

This is all true. However, we also have a lot of evidence – not just anecdotes but systematic evidence – showing that self-interest is not the only human motivation that matters even in our economic life. Self-interest, to be sure, is one of the most important, but we have many other motives – honesty, self-respect, altruism, love, sympathy, faith, sense of duty, solidarity, loyalty, public-spiritedness, patriotism, and so on – that are sometimes even more important than self-seeking as the driver of our behaviours.[1]

Our earlier example of Kobe Steel shows how successful companies are run on trust and loyalty, rather than suspicion and self-seeking. If you think this is a peculiar example from a country of ‘worker ants’ that suppresses individuality against human nature, pick up any book on business leadership or any autobiography by a successful businessman published in the West and see what they say. Do they say that you have to suspect people and watch them all the time for slacking and cheating? No, they probably talk mostly about how to ‘connect’ with the employees, change the way they see things, inspire them, and promote teamwork among them. Good managers know that people are not tunnel-visioned self-seeking robots. They know that people have ‘good’ sides and ‘bad’ sides and that the secret of good management is in magnifying the former and toning down the latter.