February 05, 2008
Charles Handy on "The Market"
Posted by Gordon Smith

Marketplace launched what promises to be an interesting series of commentaries yesterday by Charles Handy, founder of the London Business School and currently visiting at Claremont Graduate University's Drucker School of Business. In the first commentary, Handy addresses "Adam Smith's Great Conundrum":

Adam Smith, the father of economics, 250 years ago, said: "An investment is by all right-minded people to be commended, because it brings comforts and necessities to the citizenry. But, if continued indefinitely, it will lead to the endless pursuit of unnecessary things."

Now that I am living for a while in California, I am staggered by the amount of "unnecessary things" that I see in the malls that dot the suburbs. America is no different from anywhere else, of course -- just more so.

The conundrum is this: All that stuff creates jobs -- making it, promoting it, selling it. It's literally the stuff of growth. What I'd love to ask Peter Drucker is: How do you grow an economy without the jobs and taxes that these unnecessary things produce?

Maybe we should blame Adam Smith, but what I'd love to ask Handy is: how do you know that those things you see in malls are "unnecessary"? What do you mean by that term, anyway? When you begin with such fuzziness, the result is predictable incoherence:

The market, unfortunately, does not differentiate between good and bad. If the people want junk, the market will provide. So we have to fall back on the conscience of our business leaders.

Notice how Handy separates "the market" from "the people." It's a strange vision of the world in which the market is dictated from the top down rather than bubbling from the bottom up. From that vantage point, it makes sense to blame business leaders for making "unnecessary things," but that clearly was not what Adam Smith had in mind. Smith was worried about the citizenry's "endless pursuit of unnecessary things," not the market forces that would service the pursuers.

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