Nobel prize economics | Evidence-Based HR

Consider any awards ceremony in any field of endeavour and, regardless of how well-respected they are, you will be hard-pushed to find any that set an absolute or entirely objective standard that will be immune to the ravages of time. In fact there is probably a close correlation between award kudos and the length of time that the award has been running. Awards should never be given to a ‘flash-in-the-pan’.

Now before we go any further let us establish our benchmark here. If your company has just won the ‘Best Skip Hire Company’ Award of 2010, or if you have been the proud winner of ‘Employee of the Month’ for 240 consecutive months, I don’t wish to denigrate your achievements in any way but I’m thinking along the lines of Nobel Prizes here, not the ’10 metres swimming certificate’, or its 21^st century corporate equivalent, the Award for ‘The-only-employee-who-actually-turned-up-for-work-every-day’.

Perhaps one of the most famous award ceremonies is the ‘The Oscars’ but they have always had their critics and judging something as disparate as films is always going to be subjective, problematic and often controversial. That is the very nature of awards – for every winner there are many embittered losers and disgruntled supporters. C’est la vie.

Very rarely do awards attract universal acclaim for their benefit to society, as with the Nobel prizes, but even the Nobel Committee have made a few choices that were notable for being inappropriate. Sometimes they are seen as odd choices at the time (the Peace Prize for Barack H. Obama, only 9 months into his Presidency) and some are dubious mainly with the benefit of hindsight (Myron Scholes for Economics in 1997 – the academic who helped invent the Black-Scholes model that, some would argue, formed the basis for many of the disastrous, financial derivative products that contributed to the financial collapse of 2008). Yet the kudos of a Nobel Prize has weathered these storms remarkably well.

So what I am proposing here is the equivalent of a ‘Nobel Prize’ for human capital management. The nearest we ever got to this was Gary Becker, who won the 1992 Economics Science prize – and that was about 30 years after he was credited with coining the term ‘human capital’. The need for greater recognition of this subject is long overdue and I cannot seriously think of any branch of economics (or even science?) that would have such universally valuable, societal benefits.

So if this is something that interests you or if, in your excitement, you have already removed your prized photograph of ‘Fastest Hamburger Flipper Award – 1985’ from your display cabinet to make room, then please visit the Top 10 in HCM page to find out more and if you want to nominate any organisation, or anyone in particular, feel free to do so by commenting below.

In the meantime, those of you who might have stumbled across my pieces about RBS, (and who adjudged them to be uncharacteristically acerbic) might understand the strength of my feelings when they discover that this is not the first time that I have tried to raise the bar for companies who profess to treat their people as ‘their greatest asset’ (excuse me while I laugh, or throw up, or both).

Back in 2005 a couple of colleagues and I made the very first attempt at establishing a rating scale for human capital management along the lines of an S&P (Standard and Poor’s) credit rating. We called it the Newbury Index and eventually awarded the Royal Bank of Scotland our lowest possible rating – a ‘D’. In case you don’t know what the ‘D’ stands for it means ‘Default’; in exactly the same way as an S&P ‘D’ signifies a company that is likely to default on its debts. At the time in question, a few years before it finally crashed, everyone else had given RBS a ‘triple A’ rating. So no nominations (posthumous or otherwise) for the likes of AIG, Bear Stearns, Lehman Bros, HBOS …… thank you.

It is fair to say that the credibility of the leading credit rating agencies has taken a nosedive recently and more and more investment analysts are starting to believe there is something in this new-fangled thing we call human capital reporting. It might not be a science just yet but with enough evidence we will get there – mark my words.

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Now is probably as a good a time as any to introduce a new ‘ism’ to the world – as we start a brand new decade knowing we have yet to find a long-term solution to the catastrophe of the 2008 financial meltdown. But it is not just the global banking and financial system that is being scrutinised more closely than ever but the very basis on which we run society. The BP oil spill will get paid for by BP continuing to operate as a conventional, capitalistic entity but you don’t have to be a rampant communist to be thinking is this really how we want to run our world – as long as somebody pays the price all is well? Obviously the green, environmentalist and social responsibility pressure groups will be muttering ‘we told you so’ but they have not put together a complete, holistic, coherent and systemic alternative to move us from where we are now. Communism failed and even democratic socialism is facing its toughest test ever. So maybe we need to start looking for a totally coherent, evidence-based approach to resolving issues of economic regeneration, social policy-making and organisational management simultaneously. Welcome to the world of valuism.

While capitalism was supposed to create wealth rather than destroy it and socialism was meant to distribute that wealth equitably, at the moment neither side seems to be sticking very closely to their part of the bargain. The goal of valuism, therefore, is much the same as the combination of these two competing forces but without any of the inherent conflict that has always produced an uneasy relationship between the two. Valuism aims to create as much value as possible for the greatest benefit of as many people as possible. Under valuism capitalists still have to produce as much profit as they can but socialists will also see that the rewards produced are more evenly and equitably spread. The only difference is the key part played by the management of people – human capital. Valuism is founded on the simple tenet that value cannot be maximised unless everyone is motivated to do their best to produce as much value as they possibly can.

Of course these arguments are not new (e.g. from each according to their ability, to each according to their need) but the world was not ready for them. Take Nobel prize-winning economist Milton Friedman’s view that -

“there is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.”

From ‘Capitalism and Freedom’ (1963), but quoted in his seminal New York Times Magazine article, September 13, 1970

Friedman knew exactly what he was saying and equally knew the reaction it would unleash – some of us do take great pleasure in shaking up conventional thinking – and as an economist myself I find I have to agree with Friedman – up to a crucial point. Where we would part is the word ‘profits’ – I would insert the word ‘value’ instead. So what’s the difference?

Take Bill Gates (or maybe Steve Ballmer as well) as an example. Bill Gates is one of the richest men in the world and is often described as a philanthropist; as are many successful entrepreneurs and businesspeople who give their money to societal causes. In Bill Gates’ case one of these is looking for a cure for malaria. The only problem is that this view of Gates does not sit easily with Microsoft’s reputation as an abusive monopolist (for which it has been fined) and I doubt if anyone would view Ballmer as the epitome of the beneficent philanthropist. Hence we have a phenomenon I call the ‘Microsoft Paradox’ (see ‘The Value Motive – The ONLY alternative to the profit motive’) – are these people a force for good or evil? They cannot be both simultaneously – an ‘evil philanthropist’ would be a perfect oxymoron.

So what is the solution to this conundrum? It’s incredibly simple – for Gates and Ballmer to truly earn the love of their fellow citizens they should have subscribed to the goal of value – that is, the most efficient, effective and innovative version of Microsoft without abusing their market position (which fits with Friedman’s view) – then they would be true philanthropists who could happily spend their well-gotten gains on whatever cause they chose.

From an evidence-based perspective there is also a simple lesson here – the only evidence that society should be interested in is value – not profit – and they are not mutually exclusive. We will explore the implications and ramifications of valuism in much more depth as this series continues.

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Tag Archives: Nobel prize economics

A ‘Nobel Prize’ for ‘Human Capital Science’