RICHARD Layard is an economist and Labour peer who made his considerable name in employment economics. Now he has written a remarkable book about happiness ( Happiness: Lessons from a New Science published by Allen Lane at pounds 17.99) which effectively trashes the claim of economics to guide policy for a good society.
Happiness, not GDP, still less competitiveness, should be the overriding principle of economic policy, Layard maintains, backing up his proposition with some fascinating statistics from the 'new science'.
Thus, money really can't buy it: while Western countries are at least twice as well off as they were 50 years ago, they are no more content. Although richer countries are on average happier than poorer ones, in all nations, diminishing returns to happiness set in steeply once incomes reach around $20,000 a year.
One important reason for this is that people judge wealth relatively rather than absolutely: even if you were happy getting a rise, finding that a colleague has a bigger one more than wipes out your happiness increment. Competition for money and status is thus a zero-sum game and the more opportunities for comparison - rankings, league tables, advertising - there are, the greater the dissatisfaction will be.
Traditional economics fails to take account of these psychological niceties, just as it does of almost all the remarkably commonsensical things that happiness really depends on - loving relationships, fulfilling work, reasonable health, ties of community and friendship, personal freedom and values - which have more impact on it than income.
Layard is in no doubt: the economic policies of 'rampant individualism' - pursued for at least the past three decades by the Anglo-Saxon countries in particular - have damaged trust, fairness and social bonds and wiped out the gains in happiness that might have been expected from rising material living standards.
What does all this have to do with management? Plenty. Although largely ignored by Layard, management is economics' essential henchman, the principal vehicle by which economic attitudes are spread. Most activity in today's advanced economies does not take place through the invisible hand of Adam Smith's atomistic market, but through the very visible hand of co-ordination in formal organisations.
Organisations dominate the economic and social landscape and in this world management's writ runs. Management, of course, shares with economics the same reductive and narrowly economic view of human nature that Layard complains of. This is reflected in companies' hierarchical controls and even more clearly in their reward systems: sharp individual incentives and targets, competitive rankings and comprehensive performance management systems.
In terms of happiness and effectiveness, this is counterproductive enough. For instance, Layard notes the 'serious errors' in prosecuting public sector reform through incentives and targets rather than professional norms, and roundly criticises flexibility as a mantra 'if we want full employment and a decent quality of working life'. Yet this is made much worse by another key psychological element that is left out of economists' accounts: the self-fulfilling nature of many assumptions about human behaviour.
As Layard notes, good behaviour elicits good behaviour trust begets more trust. But the reverse is also true. If (obeying underlying theory) managers treat employees as opportunistic chancers who are only motivated by large incentives, that's what they will come to resemble. Likewise with shareholders and directors.
Hence the phenomenon of the 'supervisor's dilemma', a vicious circle in which tight supervision generates behaviour that seems to justify still tighter control. This is a close portrait of much of today's management, at least in the US and Britain, where people's levels of trust in one another have halved since 40 years ago - although not in Europe, where levels have stayed much the same.
What does this mean? The implication is that companies and managers driven by the economic model of human nature are not only engines of individual unhappiness (as is largely borne out by people's worsening experience of work) but through these self-fulfilling assump tions they are reshaping people in their own impoverished image in a way that makes happiness impossible to achieve in the future. This is a frightening prospect, and clearly illustrates why the attitude-shaping role of management is so pivotal.
But there is , appropriately, a happier aspect to all this. If Layard's analysis casts interesting reflected light on the dark side of management, identifying exactly why so much of today's practice is counterproductive, it also offers hope to those of us who would like to be more optimistic.
Thus for Layard a happy society is based on old-fashioned virtues such as trust, fairness and (yes) equality. Although political leaders and managers are wedded to 'change' and 'flexibility', 'there are huge advantages to inflexibility and predictability, as continental Europeans appreciate.'
In his vision, there is no overwhelming need to work harder to keep up materially security and family-friendly policies are more important than absolute income. Targets, incentives and performance-related pay aren't the best way of running companies or revolutionising public services. A fulfilling job allowing pride in the work, challenge and autonomy, is its own reward and the best motivator. Since people care more about losses than gains, repeated reorganisations may produce more harm than good.
Phew. But although this list runs counter to many of the assumptions now made about management, it's certainly not incompatible with economic success. In fact, it fits extremely well with what a minority have argued about management all along: that a model based on a more rounded idea of human nature is more realistic and hence more effective than the present, stunted version. A company run on these lines is likely to be 'better' in both senses of the word.
Word has it that Layard has presented his Benthamite 'felicific calculus' in Downing Street. We're not told whether the reaction to his book was frowns or the reverse. But for those of us who believe that companies should be a force for happiness rather than exploitation and despair: read it, and take heart.
The Observer, 10 April 2005