Tools: Economic rationalism isn’t…

Economic: from Gr. oikonomos; ‘pertaining to the management of the household’.
Rationalism: ‘a theory which regards reason, rather than sense, as the foundation of certainty in knowledge; the principle of regarding reason as the chief or only guide in matters of religion’.

[definitions from the ‘Oxford English Dictionary‘]

Economic rationalism isn’t. It isn’t economic; and it isn’t rational. So it’s a bit unfortunate that it’s been the dominant political philosophy for the past few decades – and one that’s commonly quoted as the key excuse for yet another ill-thought-through business blunder…

Underlying economic rationalism is a core concept called ‘monetarism’. Put as simply as possible, this concept asserts that the only functional way to assess value – value of any kind – is in monetary terms. The management of an economy is the management of resources, which in turn is largely driven by ideas of value. So economic rationalism, in turn, asserts that the only functional way to run an economy – an economy of any kind, whether the economy of a country, a company, a community or a single household – is to measure all values in monetary terms. Everything can and should be measured in monetary terms: anything which doesn’t fit this schema can simply be ignored, because it has no value.

It’s really simple. Too simple: in fact it’s a classic example of the old adage that “for every complex problem there’s at least one clear, simple, easy-to-understand wrong answer”. But precisely because it is easy to understand, it’s extremely popular… which is precisely why it’s so much of a problem – and why any business which fails to understand why it’s a problem, and what to do about it, is putting itself greatly at risk.

Economic rationalism is indeed ‘rationalism’ of a kind: it’s clearly “a theory which regards reason, rather than sense, as the foundation of certainty in knowledge”, and is arguably like a religion in the way in which it regards monetarist reasonings as its “chief or only guide”. But rational it’s certainly not: at any rate, not in the dictionary sense of “exercising one’s reason in a proper manner; having sound judgement; sensible, sane”. It’s simple enough to build a consistently-reasoned ‘rationalism’ based on nothing more than fantasy: after all, that’s what science-fiction writers do for a living. But in the real world, reasoning is only rational if it’s firmly anchored in reality: and that’s exactly what economic rationalism isn’t.

Economic rationalism is based on monetarism: which is the reason both why it isn’t economic, and why its reasoning isn’t rational. Monetary ‘valuation’ is a useful measure in some contexts, obviously, but there are many reasons why it’s a very poor means to measure value overall. Some of those reasons can easily be seen in quality-management, for example, or in the centrality of a purpose-statement in any functional quality-system. So whatever the proponents of economic rationalism might purport, the fact is that an exclusively money-based economy is riddled with intractable problems: it doesn’t work, it’s never worked, and it actually can’t work – not least because it doesn’t and cannot measure every aspect of the real economic system. And trying to pretend otherwise is just plain foolish. Not that that’s all that unusual, of course… especially in politics!

Sometimes, though, ‘economic rationalism’ of one form or another is promoted for reasons other than straight stupidity: far too often a so-called ‘rationalisation’ is used to mask what can only be described as theft – if only a ‘theft’ of a sense of meaning and purpose. For whatever reason, though, most current ‘rationalisations’ following on from mergers and the like are based primarily or solely on economic-rationalist assumptions about short-term financial gain: but the real costs, especially in morale and thus in productivity, almost invariably create financial loss in the longer term. And the failure to understand that a real economy is much, much more than a simple set of account-books causes enormous damage at every level, in every context and, inevitably, to every company.

So economic rationalism isn’t. It isn’t economic – in any sense. It isn’t rational – in any sense. So next time someone tries to sell you or your company some kind of ‘economic rationalisation’, it’s worthwhile asking yourself – and them – a few pointed questions:

  • what’s ‘economic’ about it? and what do they mean by ‘economic’ anyway?
  • what’s ‘rational’ about it? what are the assumptions on which that ‘rationalisation’ is based?
  • what are the short-, medium- and long-term implications for all stakeholders – rather than only for those who are promoting the ‘rationalisation’?

If you don’t get reasonable answers – and you usually won’t – it’s neither economic, nor rational.

But it’s probably economic rationalism.

Which isn’t.

So don’t?

The best follow-on reading here would be the business pages of your favourite newspaper. Notice those articles and news-items in which the words ‘finance’ and ‘economy’ are treated as synonyms – which should tell you straight away that someone’s lost in economic-rationalist delusions. What kind of ‘rationalisation’ are they selling? They’re no doubt proposing some kind of ‘economy’: but do they just mean ‘cost-cutting’ instead? If so, for whose benefit? For which stakeholders? What are the long-term implications that they’ve missed? What are the likely implications for morale, for quality, for productivity – and for the society as a whole?

Economic rationalism isn’t; but so many people want to think that it is. Interesting to see what happens as a result of that one mistake, isn’t it?

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