Restoring Ethics to Economics

Many people today question the neoclassical economic assumption of “homo economicus” – the idea that individuals focus strictly on maximizing their material outcomes within free and competitive markets. Developments such as income inequality, the effects of globalization, the fallout from the global financial crisis and the environmental impacts of climate change are converging to expose the hollowness of this premise. Applying this neoclassical doctrine has reduced trust in institutions and fueled an accompanying rise in nationalism and extremism.

“The dominant economic paradigm is facing a crisis of legitimacy.”

Moreover, homo economicus is a questionable portrayal of human nature. Recent studies in evolution find that, while selfish people tend to do better than more socially conscious individuals within a group, organized groups of altruists outperform those of individualists. Human beings are inclined to ostracize outsiders while favoring their own, but social group identity boundaries can extend beyond national or regional borders to encompass the globe. And most systems of ethics – whether religious or not – impel people to act for the good of others. 

“We need a commitment to the common good as a moral boundary on the market economy.”

Findings from psychology indicate that human happiness derives from more than material wealth; social bonds, generosity and integrity are critical components. The narrow neoclassical economic view has created an “ethical blind spot” in the neglect of the common good – that is, the benefits to all that arise from shared efforts.

“We must restore ethical reflection to the heart of economic reasoning, recenter policymaking on the common good, and re-embed ethical education in economics and business education.”

Universal morals need to check the market economy to circumvent the harmful effects of people acting solely on material incentives. A worldwide commitment to cooperative economic activities is one way to care for the global common good without neglecting individuals’ needs at a national level. Delineated objectives in initiatives can also spell out the responsibilities of rich countries toward the developing world. For instance, in recognition of the continuing shock waves from neoclassical economic policies, the United Nations came up with 17 Sustainable Development Goals that 193 countries adopted in 2015. The goals require that economic development programs include “social inclusion” and “environmental sustainability” objectives, thereby helping to bring broader ethics back into mainstream economic thinking.