In his widely reviewed new book, Harvard political philosopher Michael Sandel notes that 'Over the past three decades, markets – and market values – have come to govern our lives as never before'. Almost anything can be, and, if the price is right, is, bought and sold: places in queues for Congressional hearings, the right to queue-jump, the right to use car-pool lanes, sterilisation, green cards, the insurance policies of those with AIDS, and body parts, to name a few. Bastions of the public sector such as health and university education are increasingly part of the market sphere. Says Sandel: 'We have drifted from having a market economy, to being a market society'.
Have no doubt that this is a critical point. Once we are a market society, is there a way back? Behavioural economics supports Sandel's observation that marketisation tends to be a one-way ratchet. For example, when an Israeli playschool decided to fine parents who were late picking up their children after school, against expectation the number of offenders increased. By paying, parents were relieved of guilt. They were no longer putting others to inconvenience: they were paying a fee for childminding. But when the school stopped levying the fines, lateness did not fall back again. It was stuck on the plateau. Paying had dissolved the sense of obligation to others.
Why should that be? One reason might be that it is a self-fulfilling prophecy. The SFP is well known to social scientists. Sociologist Robert Merton first wrote about it in the 1940s. Unlike the behaviour of physical objects, which is unaffected by human beliefs, what we think about human nature helps to shape it. 'The self-fulfilling prophecy is, in the beginning, a false definition of the situation evoking a new behaviour which makes the originally false conception come true,' wrote Merton. Theory alters practice, which then confirms the theory. Neat.
But also troubling. There is plenty of evidence that this is what is happening in economics and management. This matters much more than you might think, given the reductive, one-dimensional version of human nature that they are both based on. 'The first principle of economics is that agents are actuated only by self-interest,' according to the great economist Amartya Sen – not casually and sometimes, but relentlessly and always. Self-interest in this extreme form is illustrated by Sen thus: '"Can you direct me to the railway station?" asks the stranger. "Of course," says the local, pointing in the opposite direction, towards the railway station, "and would you post this letter for me on the way?" "Certainly," says the stranger, resolving to open it to see if it contains anything worth stealing.'
Almost no one, including economists, believes than humans really act this way. But only by such simplification can they distill their theories into axioms and mathematical equations that work. Meanwhile, exactly obeying Merton's description, the side-effect of telling people so often over the last three decades of marketisation that they are uniquely driven by self-interest is to make them believe it.
The most obvious instance of the belief in action is executive pay. Since the 1980s – ie just the period that Sandel writes about – appeal to self-interest has been expressly designed into Anglo-US corporate governance. CEOs are supposed to be greedy. In a caricature of Adam Smith's invisible hand, under option and equity based pay schemes by enriching themselves they enrich the body of shareholders too. Greedy is what they have predictably become – witness Sir Martin Sorrell's aggressive justification of his planned pay hike at WPP, using just this defence. As Alfie Kohn, a well-known writer on pay and motivation, puts it: 'Do rewards motivate? Absolutely. They motivate people to demand rewards.'
But it is not just among CEOs that the SFP carries out its stealthy work. 'A growing body of evidence suggests that self-interested behaviour is learned behaviour, and people learn in by studying economics and business,' a group of respected Stanford academics concluded in 2005.
In what one of them, Jeff Pfeffer, termed an 'incredibly depressing series of studies', business and economics students were found to be more prone to cheat, free-ride and violate codes than counterparts in other disciplines. They are less cooperative and generous in business simulations. One study found that as they went through their courses, MBA students became more focused on shareholders and less on customers and employees. Anther identified business-school students as least concerned with knowledge and understanding, economic and social justice, and developing a meaningful philosophy of life. Yet another found that the tendency of larger firms to violate safety and health regulations was linked to the growing proportion of MBAs in top management. In short, business and economics students come more and more to resemble Sen's caricature of economic man, the starting assumption of their discipline. 'Economics,' says Pfeffer flatly, 'is toxic.'
The widening and deepening market logic described by Sandel follows the same dynamic, spreading the infection from business and economics into other spheres. Thus, researchers consistently find that while most people do not consider themselves self-interested, they think others are – a testament to the normative power of such beliefs. It doesn't matter if people believe them themselves. They don't even have to be aware of them. They just have to act on them to make them come true.
This then is the nightmare scenario. The battle of economic ideas is decided not by which ones best explain the world but which most affect it and thereby become true as a result of their own influence. Of course, there are positive economic ideas out there which could operate in the same manner. But the progression from market economy to market society that Sandel notes leaves little doubt as to which side is winning the battle of ideas. It is the result of a self-fulfilling prophecy in which the more market values are acted on, the more they are internalised, like a computer virus wiping our their own tracks in the process. As with the playschool parents, the market is well on the way to remaking human nature in the form of economic man and companies as prisons or boot camps to contain their rampant self-interest. Economics has long been referred to as the dismal science. Now we can see what that really means.