24th October 2011
The Wolfson Economics Prize is offering £250,000 to the economist who comes up with the ‘best plan for winding up the euro in an orderly way', with a deadline of January 2012.
Financial reward for solutions
Offering prizes for solutions to big problems is a fresh idea that has gathered support in recent years – particularly among behavioural economists who see it as an effective way of solving problems.
A recent example of this at work is a prize fund that was established in 2006 to reward African leaders who shunned corruption, and demonstrated true leadership. The Mo Ibrahim Foundation handed the prize this month – $5million award paid over 10 years and $200,000 annually for life thereafter – to President Pedro Verona Pires of Cape Verde.
The world has lost faith in leaders
Finding true leaders may be tough, but what are we to do if we face a crisis without one? Given the world is swept up in the worst financial crisis since the 1930s, "if not ever", we need solutions and strong leaders – but neither has come to the fore.
Trust in our leaders is at an all-time low. The economic crisis has required urgent action, with leaders that have failed, or perhaps been too scared, to take action – in some eyes the euro crisis in particular turned into a farce.
Historian Geoffrey Hosking comments on the credit crunch and the importance of ‘trust' in a policy paper. He says that while we put trust in all matters of our lives everyday, without even noticing, it if is broken too frequently the damage is done.
He says: "Trust is one of the most pervasive, but also least noticed, features of social life. We all exercise it unthinkingly every day. For forty-one years I have been trustingly paying substantial sums each month into a pension scheme, without getting a penny in return. Fortunately my trust was justified: when I retired a few months ago, I started to see the benefit…
"Trust is not infinitely elastic, though: eventually counter-evidence has its effect and we turn to distrust, which is equally cumulative and self-reinforcing. This is exactly what has been happening in financial markets."
Awaiting a solution to the crisis has led nowhere. The trust we might have felt in decision-makers, as Hosking suggests, has turned to distrust. So the system needs repairing, but how is this best done?
Hosking adds: "I have been working on the history of structures of trust in various past societies. My findings suggest that, when there is a real crisis of trust, the best way to tackle it is to both broaden and democratise trust."
The wisdom of crowds
There are global problems from economic woes to global warming which demand alternative problem solving approaches. Making use of the collective minds of people around the world through social platforms, as the power of Wikipedia demonstrates, may set us on the right path to solutions.
Kim Stephenson, Mindful Money's psychologist blogger, says: "…I use the wisdom of crowds idea a lot in management development because it provides a lot more potential answers to real world problems than one person, however clever that one person is."
The need for new institutions
German professor and sociologist Ulrich Beck talks in the Guardian on the need for new institutions and the burden on the individual – the world we find ourselves in lends itself to a fresh philosophy.
He says: "The individual…must cope with the uncertainty of the global world by him or herself. Here individualisation is a default outcome of a failure of expert systems to manage risks."
Perhaps by crowd-sourcing for problem solving we can take the focus off the individual onto the collective.
Applying the approach
One of the greatest problems facing humanity today is global climate change, yet we aren't close to stopping the devastation in its tracks.
Thomas W Malone of MITSloan Management says on his blog: "In the Climate CoLab project, we're applying this approach to climate change. An online community of people from all over the world is already creating, analyzing, and discussing detailed proposals for how to address global climate change. For instance, last fall we had a global competition for proposals addressing the question: What international climate agreements should the world community make?"
He adds: "One of the finalist proposals came from a team at Tsinghua University in Beijing; another came from a software developer in North Carolina who had no prior professional connection to this issue. The winning "Popular Choice" proposal suggested a creative kind of negotiation between neighboring countries in the Northern and Southern hemispheres that I haven't heard proposed anywhere else."
The big society
The economic crisis, beginning with the credit crunch in 2008, has been a decisive turning point, whose scale has not yet been understood by financial history.
However, like all crises, it one gives us the opportunity to rework current thinking. If we can open key questions to a bigger society than the politicians currently in place this may make prompt essential change – whether they be aimed at the economic crisis or, say, global warming.
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