Here is the text I gave to graduates in the University of North Carolina at Chapel Hill's Management and Society program. After some opening pleasantries . . .
For this year's commencement I think we need to talk a little about myth and reality, and about a word you've all heard a lot of in your studies here, and in the news for the last year: markets.
Markets are sacred in our era, and yet in the last eight months there has been a noticeable tendency toward the profane when they are invoked. That's a good thing, because even if you like markets, treating them as sacred is a bad idea -- as any free marketeer could (or should) tell you.
Markets are mostly a way of setting prices, and for that they are pretty efficient. It's hard to figure out the right price for something without them. But they are always situated in a social context - as there is no such thing as a free lunch, there is no such thing as a free market.
But we can speak of markets as being relatively unfettered versus relatively highly regulated. When markets are relatively unfettered, two outcomes are predicable.
First, economic inequality will increase. That is because in the competitive arena, winners crush losers and take their stuff, creating fewer winners with more stuff, and more losers with less.
Second, corruption spreads. Of course, corruption can occur as a result of heavy regulation as well. But the free-market kind of corruption results from the concentration of wealth and the tendency of winners to hoard resources, especially information, in ways that end up distorting the market. Before last year, one of the best examples of this was Enron, in which a giant corporation operated in an area of the economy -- energy futures trading -- that was not heavily regulated, and they got so carried away with their power that they ended up actually flipping traffic lights on and off in California to increase their short-run profits.
After last year, of course, the best example of this is our banking industry, in which financial instruments were bundled and sold, based on valuations that were fictional, to put it mildly.
Interestingly, one of America's chief rivals in the new century, China, also presents good examples of both outcomes of unfettered markets. Economic inequality is through the roof in China, as the country has gone from one of the most egalitarian to one of the most unequal in scarcely one generation. And we have seen rampant corruption, ranging from the tainted milk scandal to the collapsing buildings in last year's earthquake -- both cases of the society's most vulnerable people falling victim to the greed of unfettered marketeers.
These examples suggest that social control over markets serves a useful purpose. So that we may use market forces for what they are good for -- setting prices - without being used by them for what they are bad for -- greed and corruption.
But the dark secret of markets is one that sociology has revealed: they don't work the way their worshipers say they work. There is always a human element, always a particular angle, always a deviation from the model. That is why I have found in my own research, for example, that the gender of a manager matters for how an organization operates. Why should the gender of a manager matter? It shouldn't. It's inefficient, irrational -- or as Spock would say, illogical. But of course it matters.
The gender of a manager matters in the same way that regulation -- or social control -- over markets matters. Because it imposes an explicit value system over the supposedly pure market mechanism. The gender of a manager matters because people's experience shapes their perspective, and their values. And the actions that people take are reflections of their perspectives and their values.
For today's graduates in Management and Society, I think this holds a simple lesson. The human element, human agency, matters -- matters in the sense that it is unpredictable yet influential. The model is not perfect. The market is not sacred. And the future is uncertain, subject to change. It is subject to change not just because of random chance, but because of the intentions and actions of people who decide that they will change the course of history, in ways big and small, for better or for worse.
Thank you, and congratulations to the class of 2009.