1 Department of Management, Aarhus School of Business, Aarhus BSS, Aarhus University2 Department of Management, Aarhus BSS, Aarhus University3 Department of Management, Aarhus BSS, Aarhus University
After conducting a series of experiments involving economics students Miller concludes: "The experience of taking a course in microeconomics actually altered students' conceptions of the appropriateness of acting in a self-interested manner, not merely their definition of self-interest." Being taught the assumptions of neoclassical economics one might become inclined to expect others to act in a self-interested way. This may indicate that the canonical assumptions of economics in turn influence the views of its practitioners for instance in business administration. The management practice of Jack Welch may show how this works in practice. He became famous for promoting a system of internal competition, in which employees were divided into a three category ranking with the top 20% being the stars, and the bottom 10% were weeded out. If such a scheme does not force employees to act in a self-interested way nothing will. The purpose of this paper is to take a critical look at some of the assumptions and theories found in economics and discuss their implications for the models and the practices found in the management of business. The expectation is that the unrealistic assumptions of economics have become taken for granted and tacitly included into theories and models of management. Guiding business and manage¬ment to behave in a fashion that apparently makes these assumptions become "true". Thus in fact making theories and models become self-fulfilling prophecies. The paper elucidates some of the basic assumptions underlying the theories found in economics. Assumptions relating to the primacy of self-interest, to resourceful, evaluative, maximising models of man, to incentive systems and to agency theory. The major part of the paper then discusses how these assumptions and theories may pervert business administration in practice, taking up issues relating to business purpose, motivation of employees and managers, goal setting, work performance, and implementation of agency theory.