Once we realize that the failure of our economic system is not due to human nature per se, and that there is merely a design flaw in that system, we can strive for a solution. Indeed, we cannot amend the economic system that is driven by opportunistic behavior, but we can design a new system that is not. The mirror image of opportunistic behavior is prosocial behavior, whereby individuals seek to enhance the utility of others, sometimes at a personal cost, rather than maximize their own utility at the expense of others. Although this seems theoretical, perhaps even fictional, there is evidence documenting such behavior. Experiments suggest that about half of humanity is conditionally prosocial— that is, they will be kind to others if others are kind to them. Acts of kindness are, however, penalized in the current economic system, often met with exploitation and lack of reciprocity. By providing incentives and rewarding those who exploit others, this economic system intervenes and breaks the natural cycle of positive reciprocity. This is how opportunistic behavior drives out prosocial behavior. But the introduction of new design principles can reinforce prosocial behavior while shielding us from opportunistic behavior. Such an underlying force can undo the harm caused by the current economic system, and promote economic equality, redistribute wealth and power, cease exploitation of private data, and restrict overconsumption and abuse of natural resources, while giving more weight to local communities. Unfortunately, these objectives cannot be achieved within the realm of the current economic system. My suggestion is to incorporate the new design principles in a new economic system, which I refer to as the cooperative economy. The Cooperative Economy proposes a solution to societal grand challenges, namely economic inequality, dominance of platform ecosystems, overconsumption of resources, loss of privacy and free choice, and some drawbacks of globalization.
I discuss the proposed design principles in my book “The Cooperative Economy.” For more information, visit the book’s website.
The Cooperative Economy proposes a solution to economic inequality, dominance of platform ecosystems, overconsumption of resources, loss of privacy and free choice, and some drawbacks of globalization.
These grand challenges have taken a toll on society, and their unfortunate consequences for humanity seem inevitable. Yet all these problems have one root cause, which is mistakenly ascribed to human nature. Observers often point to greed as the underlying motive that drives opportunistic behavior at all costs. Nevertheless, we should not blame firms for seeking profits or consumers for maximizing utility. We must blame the economic system that has prioritized these aims over societal values, and that rewards the opportunistic entrepreneurs while penalizing those who strive for cooperation.
Economic theory has made some incorrect assumptions. Not all humans were born as opportunistic creatures. Some are more opportunistic than others, and the majority tend to be cooperative. So why do we mostly observe greed and opportunistic behavior in our economic system? This is due to the design of this system that reinforces opportunistic behavior beyond the tipping point. When everyone around us behaves opportunistically, we cannot afford not to. A vicious cycle transpires, whereby profit seeking becomes the default, while societal values are forgotten. Efforts to fix the economy via regulation, legislation, innovation, and aid are doomed because they treat the symptoms, not the disease. After decades of attempts to infuse compassion into a ruthless economic system, we must admit that we have failed. In my book, I explain why I conclude that the modern economic system is unfixable and offer a new approach to cope with the challenges. For more information visit the book’s website.
The free flow of goods, capital, and labor has many merits, but not everyone can enjoy the gains. Globalization has fostered economic inequality by increasing the return on capital while depriving the underprivileged, who have remained immobile and taxable. Multinational corporations have leveraged globalization to specialize, optimize supply chains, reduce costs, and evade taxes, while gaining power relative to governments. National policies have fallen short in responding to job loss, brain drain, flux in international migration, and unemployment. Globalization has promoted consumerism and overconsumption while making financial networks and supply chains more vulnerable, as demonstrated by the mortgage crisis in the United States, the Covid-19 pandemic, and the war in Ukraine. Moreover, the individualistic culture promoted by globalization has challenged societal values and otherwise cohesive social structures.
In devising policies, international associations find it difficult to reach a consensus given the diverse interests of member states. Governments have been unable to balance economic forces and free trade with societal and environmental motives. Attempting to transplant societal values into multinational corporations with a for-profit mission is unlikely to succeed. Thus, a recent OECD report admits that “we urgently need to fix globalization, but we don’t fully know how to do so.” The drawbacks of globalization have exacerbated the problems of the modern economic system. It is time to consider a new approach to cope with the drawbacks of globalization. I discuss such an approach in my book The Cooperative Economy. For more information visit the book’s website.
