Does kindness have a place in modern economics?

Dr Saite Lu, Mead Fellow and Director of Studies in Economics at Emmanuel College, Cambridge explores how economic thinking has changed through time and why it’s important to refocus on kindness. 

Modern economics can trace its roots to Adam Smith's seminal work, 'The Wealth of Nations'. In his time, economics was primarily regarded as a moral science. Regrettably, contemporary interpretations of Smith's legacy have become somewhat constrained.

Economics textbooks have been dominated by concepts such as self-interest, optimisation, and market efficiency, while other essential behavioural traits like kindness, compassion, and trust are largely absent from the scope of economics. These elements, which Adam Smith detailed in his other seminal work, 'The Theory of Moral Sentiments,' are instrumental in understanding daily human interactions.

Nobel laureate Angus Deaton has recently been critical of the way economics has been shifting from its foundational objective – studying human welfare. He advocates for a principled re-evaluation to mitigate potential pitfalls in the future and encourages economic thinking to re-focus on helping improve people’s lives.

Kindness in economics matters. It is instrumental in forging networks and institutions with favourable impacts for corporate financial performance and societal well-being. Layard and Ward (2021) highlight that it is well-being that we ought to boost in society. Having profit as the sole target will inevitably lead us astray.

Kindness as a catalyst for positive organisational impact

Kindness is crucial in promoting the formation of networks and institutions with positive outcomes. In today's fiercely competitive job market, attracting and retaining talent remains a formidable challenge. Companies that embed kindness into their corporate culture not only attract the most talented employees but also the like-minded ones. 

Notable successes like Patagonia substantiate this perspective. Its human resources department champions a "let them go surfing" motto, reflecting the company's flexible work schedule. This flexibility, combined with healthcare benefits and on-site childcare, further improves work-life balance and the overall well-being of its staff (Chouinard, 2005).

When staff members feel cherished, supported, and integrated into a community, their sense of belonging to the company strengthens. This sense of belonging reduces turnover, diminishing the costs linked to recruitment and training. Furthermore, content and committed teams amplify productivity and elevate the chances of success.

Empathetic, respectful, and equitable leadership invigorates and inspires employees and generates trust within the institution. A conducive workplace culture fosters collaboration and innovation, translating into enhanced productivity. The recent experiment with a four-day workweek supports these assertions, revealing not only reduced leave rates but also increased revenues, presumably due to enhanced productivity.

A separate report focusing on the banking sector by the Global Alliance for Banking on Values (GABV, 2016) found that, compared to Global Systemically Important Financial Institutions (GSIFIs), sustainability-focused banks exhibited stable Returns on Assets and showed resilience with reduced volatility over a decade. While GSIFIs historically yielded superior Returns on Equity, sustainability-focused banks excelled after the global financial crisis, maintaining decreased volatility. The elevated returns of GSIFIs are attributed to increased leverage, suggesting greater associated risks.

Kindness in economics extends beyond mere goodwill gestures. It fosters positive organisational cultures, draws in and retains talent, and enhances productivity and financial performance. As businesses evolve towards purpose and responsibility, the significance of kindness as a benchmark for success is amplified. Organisations centred around ESG principles exemplify the harmonious relationship between kindness and economic success, mapping out a blueprint for a compassionate and thriving business future.

It is important to remember that a little kindness goes a long way, and it is not just for business. Being kind not only adds to our own wellbeing but also strengthens social bonds, broadens perspectives, and creates a much happier world. 

Ellen Fraser

Ellen Fraser leads Baringa’s global Energy Retail, Networks and Water practice and has the responsibility for Baringa’s portfolios in the UK, Europe and Australia. She’s sat in boardrooms with the CEOs of every major UK energy supplier, and even informed policy with energy regulator Ofgem. She’s a familiar face commenting on the BBC, and quoted everywhere from the Financial Times to The Guardian.