economics – Page 3 – Four Cultures

A mutual alternative to markets and hierarchies

The trouble with a bi-polar view of the world is that there only ever seem to be two rival ways of doing anything. The choices are strictly limited. In the midst of the financial crisis, the pendulum has swung from the private sector ownership of banks to public sector ownership, as though these were the only two conceivable possibilities.

Grid-group cultural theory offers an analytical prism through which to see that there are not two but four ways of organising (and of disorganising) anything. The Individualist approach (Privatise!) and the Hierarchical approach (Nationalise!) are complimented by the Fatalist approach (it’s all a lottery!) and the Egalitarian approach. For reeling financial institutions it’s this latter that now has great potential.

While private banks are go under and governments struggle to work out how to salvage the wreckage into nationalised institutions, the mutual sector has survived relatively unscathed and remains robust. Now it the time to consider expanding it, not least by re-mutualising the institutions that were aggressively de-mutualised during the zenith of free-market triumphalism.

The mutual option has been overlooked or denigrated for a long time because it reflects neither the Individualist nor the Hierarchical worldview. It is an Egalitarian way of organising, with owners, tellingly, being termed members.

But mutuality doesn’t really need cheerleaders. As mortgages and other forms of loans increasingly dry up, people are likely to get together to solve the problem themselves. After all, this is how the mutual sector arose in the first place. The chief question is whether or not those who are opposed on ideological grounds to Egalitarianism, will now get out of the way.

Having said this, it would surely be damaging to the overall ecology of finance if mutuality, or for that matter any other model, were to come to dominate. This is unlikely in the long term, given the fluid and dynamic nature of the environment in which it finance operates. The short term danger is that, refusing to see that we always have four options, we may seek to promote one alone, to the exclusion of all else. This is the recent history of the financial sector and it hasn’t been pretty. As the Cultural Theorists might say, the only thing worse than a clumsy but workable solution is the elegant but disastrous failure we see all around us.

See more on clumsy solutions.

Fatalism in America today

I’m still thinking about fatalism as one of the four cultures of Grid-group cultural theory.

Even in the United States, whose mascot is Lady Liberty, not Lady Luck, and don’t we all know it, there is clear evidence of fatalist activism. Continue reading Fatalism in America today

Fatalist economic policy in Australia

As part of an economic recovery package worth $42 billion, Prime Minister Kevin Rudd is going to give handouts of cash to Australians to the value of $12.7 billion. This has been derided by sceptics as ‘the next blind throw of the dice‘.

It could perhaps be more helpfully seen as another example of fatalist activism – a throw of the dice, but not necessarily blind. Faced with a seemingly intractable and capricious situation which Australia has little control over (the global economic downturn), government policy in the Fatalist mode seeks to introduce yet more capriciousness – ‘contrived randomness’ is the phrase coined by Oxford Professor of Government, Christopher Hood. Perhaps it is some good luck meant to balance out the prevailing bad luck.

Certainly, to this recipient of the ‘bonus’, the world seems a little more capricious than it did yesterday. The effect of the handout is similar to the feeling of winning a very small lottery prize. As an unexpected windfall it devalues just a little the idea of budgeting. Should I expect another handout later in the year – or not?

Is this a good use of public money? One newspaper article claimed that after the last such ‘economic stimulus package’, spending on gambling rose by $40 million. I find it almost impossible to see how it can contribute effectively to improving the economy. But then, I’m not persuaded by the Fatalist worldview, so the logic of this move seems incomprehensible to me.

In Australia, the original Fatal Nation, this kind of thing happens all the time.

See also:

How to be a Fatalist

Fatalist policy in action

If you only read one Nobel Prize Acceptance Speech this week…

…you could do worse than to make it this one:

http://www.nobelprize.org/nobel_prizes/economics/laureates/2002/kahneman-lecture.html

Economist Daniel Kahneman at his most accessible (not particularly) and relevant (very). You can also watch it.

“people rely on a limited number of heuristic principles which reduce the complex tasks of assessing probabilities and predicting values to simpler judgemental operations. In general, these heuristics are quite useful, but sometimes they lead to severe and systematic errors.” Tversky & Kahneman, 1974: 1124

If you prefer your behavioural economics a little less dry, you could try instead, Dan Ariely’s book, Predictably Irrational – apparently there’s an expanded edition coming out in May, but I suspect that as a behavioural economist he’s pulling a fast one on us. “Expanded? Must be even better!!”

http://www.predictablyirrational.com

Economic Crisis – perhaps now we’ll have some decent music

A recent article about 1980s British band the Specials makes me ponder the link between economic downturns and quality popular music.

It was an era of strikes, unemployment, recession and a hundred thousand school pencil cases with black and white checks scratched on them…

So it would be nice to hope for better pop now the bottom’s dropped out of the economy. At least in the midst of shipwreck we could be buoyed up by music.

But before getting our hopes up, let’s pause and remember that while Coventry gave us Jerry Dammers, Terry Hall and the Specials, just along the road in Birmingham, gearing up for world domination was – Duran Duran.

Economics of the Singularity

Crooked Timber has been running a ‘book event‘ on the economic ideas of science fiction writer Charlie Stross.

In case you haven’t come across him, Stross is a prolific (300,000 words a year) writer of extravagant ideas who lives in Scotland. His approach to pulp sci-fi is reminiscent of Philip K Dick’s. Sure it’s commercial, but with Stross as with Dick, it’s also art.

Perhaps the thought of economics puts you off an otherwise good read. Or perhaps the thought of science fiction puts you off some otherwise good economics. But for anyone still left in the room, the discussion, including posts by economists Paul Krugman and John Quiggin, as well as by writer Ken MacLeod, is well worth reading.

Warning: cheap joke ahead.

Of course, some might say all economics is fiction…

What the world needs now is… efficiency plus resilience

Economist Bernard Lietaer has an interesting paper on handling the current financial crisis. It’s based on the interplay between efficiency and resilience.

http://www.lietaer.com/images/White_Paper_on_Systemic_Bank_Crises_December.pdf

Lietaer’s main point is that in going all out for efficiency, economic managers have failed to pay attention to the importance of resilience, which requires such seemingly ‘inefficient’ features such as redundancy.

He is also concerned with the very idea of a general equilibrium theory in economics, when financial systems are, for him, better seen as being in dynamic disequilibrium.

As Lietaer notes,

“The misclassification of economics as a system in equilibrium is brilliantly explained in chapters 2 and 3 of Beinhocker, Eric The Origin of Wealth: Evolution, Complexity, and the Radical Remaking of Economics (Cambridge, Mass: Harvard Business School Press, 2006)” (Lietaer 2008:15)

Competely independently of this, but on a related topic, the Association of American Geographers has a session at its Annual conference in March entitled:

From Growth to Resilience – Changing Perspectives on Regional Development.

Dear Davos, How much is there?

Rupert Murdoch at the World Economic Forum

News channel CNN is giving ‘influential bloggers’ a chance to ask world business leaders a burning question at the forthcoming world economic forum.

The question Fourcultures would ask is:

How much is there?

This question is deceptively simple. Think about it for a moment, then if you like, take the little poll to the right of this page.

The answers given at Davos would increase awareness of the way our assumptions are conditioned by the four biases described by grid-group cultural theory. Given the context – a meeting of world business leaders – it can be predicted that the most popular answer by far would be:

‘There is plenty, as long as we harness our ingenuity and hard work’.

It would speak of, in Rupert Murdoch’s words, ‘what happens when human talent, ingenuity and ambition is given free rein’. This is the world view of the individualists, for whom the world is a cornucopia, to be unlocked by innovation and personal prowess.

The second most popular answer would be:

‘There is enough, as long as we regulate it properly’.

This is the hierarchical approach, and it is to be remembered that, internally, many large businesses are effectively hierarchical bureaucracies.

Way behind would be

‘There’s not enough – we’ve got to change our values, share more and be more frugal’.

Unfortunately this is the answer of most egalitarians, including a large part of the green movement. I say unfortunately, simply because it’s hard for them to see that when they speak with business leaders they’re often speaking a different language.

Also unpopular would be

‘How should I know how much there is, let’s just spin the wheel and see where the ball lands!’

This is the fatalist worldview, and it’s extremely populareverywhere except Davos. But in their spare time, the business leaders of Davos may well apply exactly this approach to life; indeed there was something of this about the financial markets prior to the recent crash.

These four answers to the question ‘how much is there?’ don’t just contradict each other, they actively compete.

So when the Transition Culture website (a meticulously egalitarian and wonderful endeavour) works out its question for CNN, it’s hardly surprising that the question chosen starts with the words

‘On a finite planet…’

Picture the business leaders at Davos rolling their eyes and saying ‘Let’s just stop right there – who says it’s finite?’

For as long as business leaders think the environmentalists are really just defeatists, we have a big, big problem. Conversely, when the environmentalists learn to translate their words for the benefit of their hearers, we begin to have a solution.

Four Cultures and Bounded Rationality

Recently this site suggested grid-group cultural theory as a type of bounded rationality could explain certain economic behaviour (that of pirates) more completely than rational choice theory could. But is grid-group cultural theory actually a version of bounded rationality, or are there important differences.? A forthcoming article in the Harvard Law Review should shed light on this:

Kahan, D. M., & Slovic, P. (in press). Is cultural cognition a product of bounded rationality? Harvard Law Review.

Update:

I’m informed that the above article is already available on-line. It is part of an in-print discussion with Cass Sunstein. Sunstein’s response to the review essay, Fear of Democracy: A Cultural Critique of Sunstein on Risk, 119 Harv. L. Rev.1071 (2006) is also available online.