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Michael C. Jensen on Integrity and Growth

April 29, 2012 3 minute Read by Matthew Denhart

Land, labor, and capital are the three inputs that economists traditionally cite as main factors of production. However, Michael C. Jensen —Jesse Isidor Straus Professor of Business Administration, Emeritus, at Harvard Business School — argues that integrity is the crucial missing ingredient. Jensen explained his thesis in greater detail at a recent symposium titled: “Beyond Agency Theory: The Hidden and Heretofore Inaccessible Power of Integrity,” co-hosted by The 4% Growth Project of the George W. Bush Institute and the O’Neil Center for Global Markets and Freedom of the Cox School of Business at Southern Methodist University. Jensen defines integrity in a normative sense, writing that it is the state of being full and complete. To achieve a state of integrity, you must honor your word. To oversimplify, this requires doing what you say you will do, and by the deadline you have given. If it is not possible to keep your word, then you must inform those impacted that you will not be keeping your word (at least not on time) and outline the actions you will take in the future (with a deadline). Integrity is so important, Jensen argues, because it builds trust. The ticker that scrolls across the top of your screen has been tracking the level of trust present in the U.S. economy. Unfortunately, the data are not encouraging. According to the Chicago Booth/Kellogg School Financial Trust Index, only 23% of survey respondents say that they trust the U.S. financial system. Worse yet, only 17% indicate they trust large corporations, and a mere 16% report that they trust the stock market. Trust is especially important in the financial industry, where, as the Financial Trust Index points out, “…people part with their money in exchange for promises.” The lack of trust in the financial sector following the 2008 crisis likely explains part of our country’s sluggish economic recovery. Trust is essential to economic growth because it reduces uncertainty and creates a predictable environment in which people can operate. William Maxwell — Rauscher Chair of Finance at SMU and a co-organizer of the symposium — praised Jensen for his many contributions to economic growth throughout his career. In an e-mail, Maxwell said of Jensen: “He is now challenging us to think about how humans interact. This offers the possibility of dramatic increases in productivity, which is the fundamental driver of long-term noninflationary growth.” Luckily, Jensen has developed a systematic approach to teach people how to apply the practice of integrity into their everyday lives. We should heed his lesson because it is of great consequence to improved trust and, by corollary, stronger growth.


Author

Matthew Denhart
Matthew Denhart

Matthew Denhart is an expert on immigration policy and is the author of the Bush Institute’s America's Advantage: A Handbook of Vital Immigration and Economic Growth Statistics, now in its third edition. He currently serves as executive director of the Calvin Coolidge Presidential Foundation and is a founder of the Coolidge Scholars Program which provides full-ride merit scholarships to America's most promising college students. A summa cum laude graduate of Ohio University, Denhart has written and spoken widely on a variety of policy topics including the economics of higher education, labor, and taxes. He has contributed articles to numerous national publications including The Wall Street Journal, Forbes.com, CNN Opinion, and Bloomberg View. 

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