Quick — who was Adam Smith?
If you answered, “The father of economics,” you’d be right.
You’d also be right if you called him a moral philosopher, who pioneered the notion of an “invisible hand” that operates in economies to help allocate goods as a result of individuals acting in their own self-interest.
I recently traveled to Adam Smith’s home country of Scotland to speak at a conference convened to consider how to preserve and reinvigorate market-oriented democracies in the face of challenges from within and from the outside.
A tall order, to be sure, but a timely and thought-provoking topic.
Globalization, technology change, the 2008 global financial crisis and recession, and social media have wrought changes to our economies and societies that are disrupting the old status quo and shaking up democracies in America, Europe, Asia and elsewhere.
Added to these factors are challenges posed by state-driven, authoritarian countries like China, Russia, and others. China especially has benefited greatly from international trade, investment and global rules established after World War II, but Chinese leaders increasingly are challenging those rules and the norms behind them.
While America is grappling mightily with these issues, few parts of the world better exemplify the challenges facing market-oriented democracies than the United Kingdom.
The UK — comprising England, Scotland, Wales and Northern Ireland — joined the European Union in 1973. But the proud island country's relationship with the EU has always been uneasy. Nostalgia for the old independent British Empire, on which the sun famously never set, has fueled resentment over the EU’s increasingly tight control over British laws and regulations.
In the UK’s 2016 referendum on EU membership, Scottish voters by a large margin opted to remain. But they were outnumbered by voters, primarily in England and Wales, who voted for Brexit.
Many “leave” voters reside in old manufacturing and mining regions that have witnessed the loss of jobs due to globalization and technology change — much as America’s Midwest has lost much of its old manufacturing prowess.
The UK is now hurdling headlong toward a probable Oct. 31 exit from the EU with no safety net — i.e., without transitional rules to govern the countless transactions that occur daily between businesses and individuals on both sides of the English channel dividing the UK and EU.
The UK’s new prime minister, Boris Johnson, who supports Brexit with or without a transitional agreement, was booed in Scotland when he made his first trip there as the UK’s leader in late July.
Fears are mounting that Brexit will fuel Scotland’s own independence movement. A 2014 vote was remarkably close, with 45% of Scottish voters favoring independence from the UK. A messy and disruptive British exit from the EU surely will bolster arguments for Scottish independence.
Do Adam Smith’s 250-year-old ideas offer any solutions to the many internal and global challenges facing America, the UK and other market-driven democracies?
Smith’s two famous works were "The Theory of Moral Sentiments" and "The Wealth of Nations." He viewed morality and compassion for others as indispensable underpinnings of business transactions undertaken by individuals acting in their own interests.
This intersection of “moral sentiment” and self-interest, in his view, results in economies that deliver benefits to the widest possible spectrum of people — and thus contributes to the wealth of nations.
Smith’s world of community and shared interests has been broken down in today’s world by increasingly anonymous and far-flung transactions in business and on social media, while rules of the road are being challenged by new players on the block.
And despite promises made by political leaders of all stripes, it’s highly unlikely that America’s or the UK’s old manufacturing centers will return to their glory days of old.
But that doesn’t mean we can’t aim to ensure that our economies do a better job of delivering greater benefits to more people more of the time. (And no, I don’t mean through socialism.)
To quote the conference’s main organizer, David Teece, a businessman, entrepreneur and business school professor:
“It is time to reexamine how public policy and the individual actions of investment managers, executives and government officials can be guided by moral principles, deep awareness of one’s place in society at large, and the geopolitical consequences of a failure to innovate and invest in the future.”
Lofty words, to be sure, but words that reflect a moral sentiment of which Adam Smith would be proud.