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Ants are fascinating creatures. Far more than a simple picnic pest or an inspirational hero moving a rubber plant, ants are complex creatures that demonstrate the value of teamwork, networking, and collaboration. Scientists are only now beginning to understand how complex an ant colony really is and how incredibly complicated and mysterious ant communication is.
And the ant colony is a perfect metaphor for what people call “the economy.”
Unfortunately, when most of us speak of the economy, we think of it as a single, monolithic creature – almost as if it has a central decision-making mechanism and a single state of being. We’re talking about the economy being in good or bad shape. We use terms like bull and bear when referring to stock markets. Academics describe the desired state of the economy as “in balance”. All of these are bad ways of thinking about economics, because economics isn’t a single thing.
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Human economic activity involves hundreds of millions of independent actions performed every second
Rather, the economy is more like an ant colony, with thousands of ants acting both independently and collectively at the same time. Human economic activity is even larger, encompassing hundreds of millions of independent actions performed every second by corporations, governments, and individual consumers. The economy is the result of what is happening overall and it is never the same from one minute to the next.
Understanding this is key to understanding how politics affects – or does not affect – the outcome of millions of economic decisions every minute. And when we think about the effectiveness of governments’ economic policies, it’s important to keep in mind some key principles of how ants — oops, I mean humans — make decisions.
Three critical decision principles
First, no economic decision is made in a vacuum. The current environment in which companies and consumers find themselves will shape and influence decisions. No example is clearer and more timely than the Covid-19 pandemic. But other examples such as prevailing interest rates, the reality of climate change and geopolitical backgrounds come to mind.
The second is that the past affects the present. Decisions are influenced by historical, cultural and institutional contexts, and these contexts vary widely, even between individual economies. For example, what constitutes a good business decision in the United States differs between Savannah and Seattle, given the very different historical and cultural perspectives of these two cities. What is logical in one environment is very different from another. Contrary to what neoclassical economists assumed, human decision-makers are far from predictable and rational.
The third principle is the future and our expectations of what is to come. These, too, can vary greatly between companies and individual consumers and are shaped by the media, governments and public institutions. For example, if we expect interest rates to rise, we change our credit decisions in the present. This is where fear and uncertainty can hinder good decision-making, especially when that fear turns into anger.
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Good public policies should create better, safer and more sustainable jobs
This brings us back to the effectiveness of public policy in shaping the economy and steering it in a desirable direction. I’ve always believed that we give governments both too much credit and too much blame for the results we see in the economy. In general, no government policy in a modern democratically governed nation is likely to single-handedly save or destroy an economy. (Even extreme actions like BREXIT in the UK can be disruptive, but for the most part, life for Britons today is not fundamentally different from before the referendum).
This does not mean that the role of public policy is unimportant. But rather than viewing politics as a means of dictating an outcome, good policymakers must understand that their role is even one of influencing seducethe collective decision-making process in a desirable direction.
The aim of good policy should be to create better, safer and more sustainable jobs. It is also to ensure that our collective anthill (aka the economy) provides good opportunities for all. However, these goals can only be achieved if policy makers understand the nature of the ever-changing, changing and mutating economy.
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