Sometimes managers dare to step in where economists fear to tread.
John G. Taft, CEO of Minneapolis-based RBC Wealth Management and author of “Stewardship: Lessons Learned from the Lost Culture of Wall Street,” thinks many of our current economic problems and the ongoing financial debacle stem from a collective loss of moral compass.
We focus too much on ourselves as individuals and not as members of communities, he argues. Our economic well-being can be restored, Taft says, only if we return to valuing integrity, responsibility and stewardship in business and public life.
Adam Smith, whose 1776 book “The Wealth of Nations” marks the emergence of modern economics, probably would agree with most of Taft’s argument.
Yes, Smith championed the idea that the spontaneous social institutions we call “markets” can allocate resources to meeting the needs of humans, and that government control of economic activity is counterproductive.
Smith also argued that self-interest was a powerful incentive for productive activity and that competition leads to innovation and economic efficiency.
Some see Smith as the father of modern libertarianism.
But he also was an acute observer of human activity in the real world and an insightful analyst of human motivations. If you think that Smith’s ideas resemble those of Ayn Rand, that the maximization of individual autonomy should be the supreme objective of society, you are wrong. Smith was a far more nuanced thinker who understood that consideration of how one’s actions affect others is a crucial element in society.
Yes, Smith’s famous assertion that “I have never known much good done by those who affected to trade for the public good” may seem to conflict with Taft’s call for greater concern for “the public good” on the part of managers. But it does not. Smith’s “Wealth of Nations” must always be read in combination with his earlier work, “The Theory of Moral Sentiments.” If one does that, it is clear that he is far from a modern libertarian.
Taken as a whole, Smith’s thought does emphasize the positive roles of self-interest and competition. But he also sees the importance of social and economic cooperation. He would have been appalled by Margaret Thatcher’s assertion that “There is no such thing as society.”
Economic history makes clear that both competition and cooperation are needed to have efficient and just economies. Moreover, moral values matter, as do public and private institutions. Economies that prosper have different cultural values than those that fail to do so.
Specifying such values is, however, an intellectual minefield that most economists avoid like the plague.
The emphasis in standard micro theory is still on competition rather than cooperation.
But much of the work of the eclectic younger scholars, “behavioral economists,” implicitly hinges on what political scientist Robert Axelrod termed “the evolution of cooperation.” We can expect to hear more of this as time goes on.
But what about ongoing economic debacles? Is Taft’s call for greater civic-mindedness on target? I think it is, and I hope his arguments will be considered widely.
One of the best parts of Taft’s book is its comparison of Canadian economic policies with those of our nation.
While most of Taft’s career over the past three decades has been here in Minnesota, he works for a Canadian-owned firm and is married to a Canadian. Growing up, he spent considerable time in Canada. So he knows whereof he writes.
Canada has always been more pragmatic and less ideological than our nation. Its constitution specifies “order and good government” as objectives while our Declaration of Independence speaks of “life, liberty and the pursuit of happiness.” Canada never fell for the fallacy that “deficits don’t matter.”
There is no Alan Greenspanesque faith in the self-discipline of unregulated markets there. Canada never allowed the pell-mell introduction of financial innovation like “liar loan” mortgages and “collateralized debt obligations cubed” – securities that consist of ownership of other securities that consist of ownership of still other securities that are a package of mortgages.
As a result, Canada has suffered far less since 2007 from the financial debacle. Yes, Canada also has benefited from favorable natural resource prices in this period. But the fundamental structures of the Canadian economy rest on far sounder footings than do ours.
Taft’s book contains much more than this. Not all of his observations are original with him, nor does he claim that they are. But he puts them together in a well- organized, readable package that will be intelligible to people who ordinarily would not read a book written by the CEO of a financial institution.
Read the book. Pass it on to friends.