McKinsey reports that our current models of capitalism are like Newton’s system of planetary motion – inadequate. The solution is similar to Copernicus’ system, except that this model identifies how and why capitalism can be beneficial for all.
“Capitalism is under attack,” write Eric Beinhocker and Nick Hanauer in McKinsey’s November update.1 The authors say the financial crisis of 2008, the stagnation of the middle class, and rising income inequality are challenging the existing models. They liken our situation to the world before the Copernican revolution.
Our ancestors knew that the stars and planets moved in the sky but the authors note “it wasn’t until the Copernican model that people understood how and why they move.” Similarly, “while capitalism has been the major source of historical growth and prosperity, we’ve been mostly incorrect in identifying how and why it worked so well.” Here are a few of the problems they see.
In the Newtonian model, rational, self-interested firms maximize profits. Rational, self-interested consumers maximize their “utility.” But this is not how real people operate. A Copernican model relies on the findings of behavioral economists. They’re discovering that real humans don’t behave as a rational, deliberative people. We’re largely irrational and behave as desiring beings. We are what we love and do what we love.
Second, a Newtonian focus on efficiency overlooks the essential role of capitalism. It’s not allocation but creation. Life isn’t drastically better for billions of people today than it was in 1800 because we are allocating the resources of the 19th-century economy more efficiently. Rather, it is better because of innovations that solved problems. A Copernican model for capitalism incentivizes solving human problems.
Finally, the old Newtonian model relies on an inadequate definition of GDP – one that doesn’t necessarily measure the availability of solutions to human problems. A Copernican model measures the number of problems solved. Google, for example, defines its mission as “to organize the world’s information and make it universally accessible and useful” – a statement about solving a problem for people.
Speaking of solving problems, Copernican capitalism solves one more. Over 20 percent of the US population self-identify as religious “nones.” They feel our mental models for religion are inadequate. Inside the faith community there are millions of exiles. They cling to the Christian faith but feel its mental models are inadequate. Exiles can’t connect Sunday to Monday. They can’t connect with religious nones. Copernican capitalism offers a way forward. Nones and exiles can together be the new Copernicans.
McKinsey’s Copernican model correlates with scripture. According to the Bible, people fundamentally operate by desire. We’re sinners, so we’re also irrational. Our desires are shaped by our practices (Latin for liturgies). We do what we love, and our loves are shaped by practices as diverse as shopping and taking the sacraments. The Newtonian model for capitalism doesn’t take this into account. The Copernican does.
Scripture also says we are made in the image of God. God is Creator. We are sub-creators. The essential role of work and capitalism is not allocation but creation. The Newtonian model doesn’t account for this. The Copernican model does.
Finally, we love our neighbors by seeking their well-being – solving their problems. Scripture measures the effectiveness of economic systems by the number of solutions to human problems. This defines prosperity; not money. As the authors note, “These solutions run from the prosaic (crunchier potato chips) to the profound (cures for deadly diseases). The more and better the solutions available to us, the more prosperity we have.” The Newtonian model doesn’t take this into account. The Copernican does.
Reframing nones and exiles as the new Copernicans creates common ground. Both groups see our culture celebrating money as the benchmark of success. Inadequate models of capitalism reinforce this. The new Copernicans want to instead celebrate innovative solutions to human problems. Together, they can reframe holiday party conversations. Instead of asking, “What do you do?” (code for how much money do you make and what status do you have), they could ask, “What problems do you solve?” Under Copernican capitalism, our society would be the better for it.
Follow me on Twitter: @Metzger_Mike
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1 The McKinsey article is adapted from “Capitalism Redefined,” Democracy: A Journal of Ideas, Issue 31, Winter 2014, democracyjournal.org. Beinhocker is the executive director of the Institute for New Economic Thinking at the University of Oxford. Hanauer is an entrepreneur, venture capitalist, and author.
Love the point about factoring in human desire/behavior. This seems to be a big differentiator in terms of schools of economics (Chicago versus MIT). Seeing it happen, I am a big believer in how behaviorial finance must be factored in (the short-term irrationality of human behavior) to have an accurate understanding of how markets work.
Thanks, Mike. I’m going to start asking, “What problems do you solve?” Bob
Bob: Looks like we solved a problem for you.
“We’re largely irrational and behave as desiring beings. We are what we love and do what we love.” Wow, why is it that something so obvious is so ignored? Maybe it is that we desire to be viewed rational when we know that we are not. Is it rational to reject the lordship of the One who created me? Yet, I do it frequently.
I just finished “To Save Everything Click Here” by Evgeny Morozov. The subtitle is something like “the dangers of technological solutionism” I’d be interested to see how that book interacts with your recent Copernican story arc.