Capitalism – Version 2.0: Renewing the psychological contract

Economic Chaos – What Happened?

Capitalism, as defined by The American Heritage Dictionary of the English Language, is "An economic system in which the means of production and distribution are privately or corporately owned and development is proportionate to the accumulation and reinvestment of profits gained in a free market." There are a number of other definitions on the Internet, and the common elements of these are the recognition of individual (human) rights, including property rights, in which all property is privately owned.

The many exalted benefits of Capitalism include the encouragement of individual initiative, a free market that determines the price of goods through competition, human rights, freedom of speech, and lastly, motivating people towards financial freedom. This all sounds great, yet given the current financial debacle one has to wonder, "what went wrong?" Some pundits will argue that greed is the culprit and others will say that poor ethics are ultimately to blame. Perhaps both are correct; however, my belief is that both these hypotheses are too simplistic. In my opinion, the true nature of our current situation has yet to be fully understood and may ultimately require a more in-depth multi-disciplined analysis. So far, the acts of throwing money at the problem and lowering interests rates have not had much of an impact on the money markets and banks, which seem immune to the corrective strategies being employed. Unless we fully understand all the co-factors that created this crisis and then work strategically to address them, we may have great difficulty overcoming them and/or will remain vulnerable to repeating the same mistakes.

In the next few paragraphs, I humbly hope to add to this discourse by exploring a construct called the "Psychological Contract". While I fully understand the logic behind economic experts strictly focusing on the financial variables, systems do not exist in a vacuum and usually are only as effective as those who use them. Consequently, I believe human factors and, more specifically the current mindset and the related behaviors stemming from that mindset are also to blame.

Psychological Contract – What American Dream?

By definition, a Psychological Contract refers to the unwritten or implicit mutual or reciprocal exchange or agreement between an employee and his or her employer and is based on the expectations, beliefs and/or perceptions of both parties. The attributes generally covered under this construct vary throughout the literature but in general include items like work ethic, pay commensurate for performance, to uphold the companies reputation, opportunities for training and career development, reasonable job security, honesty, work-life balance, respect, loyalty, and trust to name a few. Thus far, the bulk of the research around this construct has, for the most part, been strictly focused on:

Even when corporations have the best intentions, the constant demand on corporations to be leaner, faster and deliver more profit makes it hard for them to meet these implicit, and at times, competing expectations. Unfortunately, intentions or dreams are not enough. The research shows that a breach to these contracts is strongly associated with a decrease in obligation to one's employer, resentfulness, a decrease in trust, lower performance, a reduced commitment to one's company, lower citizenship behavior, feelings of betrayal and, ultimately, even to an increase in attrition. The full impact of this breach has yet to be fully understood and navigating this crisis successfully will require that all the stakeholders show up fully committed and ready to work hard. Otherwise, whatever strategy is undertaken will be greatly compromised before it is even started.

The broken psychological contract at the corporate level may only be a symptom of a greater problem. Namely, I hypothesize that a similar Psychological Contract exists at a higher level. More specifically, in the relationship we as citizens hold with our respective governments. One does not have to work hard to find news articles and clips about government corruption, the crumbling infrastructure, or broken social systems like Social Security and health care. To many people these entitlements represented a safety net. People used to trust that their companies and their government would ensure that their best interest, safety and security were being looked after. In short, they believed that both these entities were honest brokers of the public interests. Given the current status of all these systems, it is no great stretch of the imagination to suggest that many people may no longer trust either? If indeed trust is lost, then, one would also assume that people are probably afraid or at the very least feeling anxious. How will they make ends meet? How will they afford mortgages, medical bills, college tuition, and retirement? Again, I suggest that we do not fully understand the breath and depth of our current situation. Let me be clear however that I do not mean to suggest that corporations or government can solely fix this crisis. The problem is greater than either entity and far too costly to tackle without first forming a coalition of sorts to address the problem. The American Dream or Psychological Contract has always been a function of the reciprocal relationship between the government, corporations and the individual. If you worked hard, then you were promised a piece of the pie. Sometimes the pie came to us from the government, sometimes it came in the form of a golden handshake from our corporations and sometimes it was a combination of both. Unfortunately, the government and corporations have for a while now been very focused on either special interest, or delivering more profit to the external stockholder. These strategies generally resulted in a decrease of return at the individual level. Unless you were lucky enough to be sitting at the top of either structure, you saw little or no reward.

While it is not my intent here to lay blame on either entity, I do believe that at least here in America, the individual worker has been hit hard from two sides over the last two decades. Americans have worked harder and endured longer and longer work days compared to any other nation and yet, have less money saved, pay high taxes, have poorer health care options, contend with crumbling schools and infrastructures, and have less leisure time than ever. Something is wrong with this picture. This is not the American Dream of my forefathers. Instead, I think we are suffering the consequences of the American Dream gone awry. In the face of broken Psychological Contracts, it has become a dog eat dog world, where individuals respect no boundaries or ethos. Since they can no longer trust the societal pillars of years past to keep them safe and secure, people are now taking what they believe was implicitly promised regardless of whom or what they hurt along the way. In psychological terms, I hypothesize that in some ways we have reverted to our survival instincts.

Capitalism 2.0.

My definition of Capitalism 2.0 does not in any way change the definition given above and certainly includes all of the exalted benefits that have inspired creativity and individual initiative throughout this nation since its inception. However, what I do mean by Capitalism 2.0 is that we need to temper our actions and behaviors with a reflective process or consciousness that is mindful of the fact that we are all connected. Technology, biology, and in deed even Mother Nature consistently remind us that even the smallest of actions taken in the dark in a remote village in the middle of nowhere can ripple effect across the globe. Whether we are talking about global warming, the financial markets, or terrorism, the future of our nation or perhaps even the human race requires us to recognize that we are connected and that we all share responsibility for co-creating the future. Our problems are the same problems facing countless others across the globe; our problems connect us all. People who have no food or shelter and feel left out will turn to desperate measures, so we cannot continue to take without regard for the responsibility we share in looking out for our neighbors whether they reside next door or on the next continent. We need to offer them an alternative and we need to renew the Psychological Contract. If we do not, it may only be a matter of time before the consequences of our disregard for others and the earth catch up with us. Perhaps they already have.

As I sit here writing, Barack Hussein Obama has been sworn into office as the next President of the United States of America. It is a time of great crisis and also amazingly a time of great hope. My wish for our nation is that we do not, once again, squander the good will of the people here and abroad, and instead focus our energy on revisiting and recommitting to our values as a nation. The problems we face are so many and so varied that if we do not approach them through some sort of cohesive systems approach (values) or lens, we might soon once again discover that we have lost our way. We cannot fix the stock the market without also fixing the mortgage situation. We cannot fix the mortgage situation without also fixing the Healthcare system. We cannot fix the Healthcare system without also fixing the Social Security system. We cannot fix the Social Security system without also fixing corruption on every level in both the corporations and government. We must recognize the connections and approach them holistically. Otherwise, we may be doomed to a perpetual game of Whack – a – mole.

Looking Forward

In closing, I'd like to repeat that my thoughts above are simply meant to increase the dialogue and hopefully inspire some creative thinking around how to better manage the issues we currently face across the globe. Simple fixes do not seem adequate for the challenges we face and I believe the current crisis will require a new partnership forged between governments, corporations and individuals. At every level, we must consider what needs to be done differently in order to create a better future for all. Indeed, we need a new Psychological Contract that is mindful of our connectedness, works to employ systemic strategies, and includes something akin to the Hippocratic oath, which reads, "First do no harm."

Eugene