Simanye recently spoke at Busara Leadership’s Partner’s “Economic Development Choices for South Africa” event focused on examining the topic of what businesses need to do to survive and thrive in the global economy. There was a lot of consideration given to the need for skills, the political landscape and various economist’s and investment manager’s outlooks. Simanye decided to examine this topic from a very different perspective compared to the traditional view by focusing on the rise of “the new economy”.
Traditional economic theory focuses strongly on the belief that individuals are inherently rational, operating optimally in their own self-interest (Homo Economicus), which is a theory that forms the basis of concepts in economics like maximising consumer utility and producer profit. These traditional theories (Rational Choice, Tragedy of the Commons, etc.) all focus on cold, rational and selfish behaviour models of economics, often not tied to an actual understanding of psychology and behaviour in the real world. While many of these traditional economic theories have become more complex in recent years, incorporating non-rational behaviour (such as bounded rationality), behavioural and evolutionary models are increasingly needed to help really understand the way that these complex systems actually work.
Behavioural economics and behavioural finance study the effects of psychological, social, cognitive and emotional factors on the economic decisions of individuals and institutions, and the consequences for market prices, returns and the allocation of resources, and recently a new paradigm, Evonomics, has also emerged.
Evonomics is a term used to describe “evolutionary economics” which proposes that our economic systems are living eco-systems that are far more complex than traditional economics would have us believe. According to Eric Michael Johnson, who holds a masters degree in evolutionary anthropology writes: “growth in nature is always balanced and multi-faceted. While certain parts of organisms, or ecosystems, grow, others decline, releasing and recycling their components which become resources for new growth. I have called this kind of growth, well known to biologists and ecologists, “qualitative growth” to contrast it with the concept of quantitative growth, measured in terms of the undifferentiated index of the GDP, used by today’s economists. Ecologists use multiple indicators to map the interplay of growth and decay, of expansion and maturation. … In economics the indicators will be different. They will include indicators of poverty, health, equity, education, and so on.” This offers a more holistic way of looking at the economic world and, it has been argued, is actually much closer to Adam Smith’s original ground breaking theories (The Invisible Hand) than how his theories have been adapted over time.
Evonomics is not saying that individuals do not care about themselves and are only interested in the greater good. What it is suggesting is that while most people are primarily concerned about themselves and their own self-interest, precisely how this self-interest is played out in the real world is far more malleable and multidimensional than the very narrow notion of quantifying and maximising one’s “utility”.
The article on Evonomics which we have linked here examines this theory in a fair amount of detail, and compares and contrasts new thinking on economics with traditional theories and assumptions.
Whether people’s minds are open to re-evaluating how the world, as they think they know it, works, or whether people dismiss this growing area of thought leadership as without merit, there is no doubt that the world is experiencing a significant socio-political and socio-economic shift. At times, we South Africans can be very insular, believing that the growing political and economic crises we are facing and the need to address inequality and access to opportunity through policies like Broad-based Black Economic Empowerment are somehow unique to our country. Simply put, they are not. Inequality, measured by the gini coefficient, has become worse in recent decades in developed countries in North America, Europe and Asia, leading to all kinds of political and economic unrest around the world, including movements such as Arab Spring and Occupy Wall Street. The world continues to feel the effects of the 2008 Global Financial Crisis, spilling over into observed xenophobia around the world and the refugee crisis of 2015. We face exponentially increasing population sizes in developing countries and ageing populations in others, bringing challenges such as poverty alleviation, creating sufficient jobs and overuse of natural resources on the one hand, as well as costs of health care and a lack of young skilled people to slot into the job economy on the other. With record high temperatures around the world 2 months running in 2016, climate change is becoming hard to refute and either way, it is clear that the threat to our natural resources is becoming critical.
Disruptive change is coming – and in Simanye’s view, the sooner, the better. With better access to information through the internet, social media and other technologies, people are becoming more and more aware of the challenges that we are facing, and consumers are becoming more discerning, and demanding more from producers of goods and services. Consumers are questioning the safety of GMO products and choosing organic instead, they are boycotting products tested on animals and products that are being made through unsustainable social and environmental practices (such as the destruction of forests in Asia and the almost-slavery conditions of workers in palm oil plantations). People are increasingly questioning “the meaning of life” and wanting to have meaningful careers, not jobs they dislike and which impact negatively on the world. A recent study shows how psychologically, people get a far better long term reward from experiences rather than buying “stuff”, which is often what our Keynesian economic systems have been based on – and which is arguably, fundamentally unsustainable in a world with growing populations and reducing natural resources. Probably the largest driver of this new way of thinking are our Millenials (people born roughly between 1980 and 2000) who think differently, want a different “utility” out of their lives and want to change the world.
The characteristics of this new world order, such as Shared Value, Inclusive Business, Impact Investing, Social Enterprise, Biomimicry and many others represent an exciting paradigm shift in the way the world will do business in the future, working towards solving the problems the world is facing and doing so in a way that can redefine an unregulated capitalist system, which is simply not working for the majority of people. These movements have strong followings globally and are increasingly growing within the South African economy. Despite the social, political and economic challenges facing South Africa, it is an exciting time to be a part of and an influencer in this economic landscape.
Read more about an introduction to Evonomics here: http://evonomics.com/traditional-economics-failed-heres-a-new-blueprint/