[P2P-F] Fwd: good reminder from Turchin

Wed Jan 20 09:02:59 CET 2016

---------- Forwarded message ----------
From: Rasigan Maharajh <rasigan at ieri.org.za>
Date: Wed, Jan 20, 2016 at 1:22 PM
Subject: good reminder from Turchin

Naked Self-Interest is a Recipe for Social Dissolution (a response to
Branko Milanovic)
<http://peterturchin.com/blog/2016/01/19/naked-self-interest-is-a-recipe-for-social-dissolution-a-response-to-branko-milanovic/>
by Peter Turchin <http://peterturchin.com/blog/?author=3>

Dear Branko,

Thank you for your comment
<http://peterturchin.com/blog/2016/01/14/branko-milanovic-the-iron-logic-of-gordon-gekko/>
stemming
from reading *Ultrasociety
<http://www.amazon.com/Ultrasociety-Years-Humans-Greatest-Cooperators-ebook/dp/B0185P69LU>*.
It’s a very clear and coherent statement of what many (if not most)
mainstream economists believe, although they don’t usually care to
formulate it as well as you did. Naturally, I disagree with it—my whole
book is an extended argument for the opposite view of how societies really
function, and what needs to be done to make them to function better.

Let’s start by making crystal-clear what we are talking about. The main
question is whether economic agents, most importantly businessmen
(including both corporation officers and business owners), should be
motivated solely by self-interest, or should they also be motivated by
personal ethics. In your view, businessmen should act as purely selfish
rational agents, whose utility functions are based solely on material
benefits (to themselves). In other words, they should simply maximize how
much money they get. You argue that if they act in this way, externally
imposed laws and institutions that embody moral rules will ensure that
their private interest will lead to greater social good. As you say, this
idea goes back at least to Bernard Mandeville’s *The Fable of The Bees: or,
Private Vices, Public Benefits*.

[image: mandeville]
<http://peterturchin.com/blog/2016/01/19/naked-self-interest-is-a-recipe-for-social-dissolution-a-response-to-branko-milanovic/mandeville/>

Now, what do you mean social good? In economics and evolution we have a
well-defined concept of public goods
<https://en.wikipedia.org/wiki/Public_good>. Production of public goods is
individually costly, while benefits are shared among all. I think you see
where I am going. As we all know, selfish agents will never cooperate to
produce costly public goods. I think this mathematical result should have
the status of “the fundamental theorem of social sciences.”

What’s very important, and something that many economists don’t appreciate,
is that no amount of “good institutions” changes this fundamental result.
No matter how well-designed rules are, and how good is the system of
sanctions forcing people to follow the rules, if everybody is a rational
agent (in the narrow sense of only maximizing their own material benefits)
the system will not work. Crooks will pay the cops to look the other way,
while judges would decide in favor of who pays them more.

Good institutions will only work when they are buttressed by appropriate
values and preferences. You will get a cooperative society that produces
public goods only when enough agents, in addition to valuing material
benefits, also have prosocial values. In other words, they value virtues
such as honesty and fairness, and prefer socially-optimal outcomes, such as
desire that collective goods end up being produced, even at a cost to
themselves.

This is actually how our large-scale societies function. A majority of
people in them have prosocial values and preferences (in addition to
self-interest, naturally enough), and that’s why we are capable of
cooperating on very large scales. Purely self-interested people are there,
but they are a minority. What good institutions do is decrease the costs
for prosocial moralistic punishers, but they don’t eliminate the need for
people holding prosocial values.

How such a state of things—our capacity to cooperate in huge groups—came to
be is a huge question for evolutionary social science, and my book provides
an answer to it.

You may say that you are not talking about cooperation, merely about how
economic life should work. However, there are two reasons why cooperation
is central to your question. First, economy is based in large degree on
cooperation. Second, you cannot separate economy out from the society as a
whole, thus leaving cooperation to the non-economic—political?—part.

Economic activities involve both cooperation and competition, which are
mixed in different proportions, depending on the level at which you look.
Firms internally are largely cooperative—that’s why they are constituted in
the first place (otherwise one could simply buy and sell individual
services on free market). You seem to accept this fact, because in your
footnote you agree with me that the system of cut-throat competition that
Jeff Skilling instituted internally in Enron was deeply destructive.

In national markets the primary mode of interaction between firms is
competition, but it is tempered by a healthy dose of cooperation. First,
not all kinds of competition are good. In particular, taking the expression
“cutthroat competition” literally, CEOs are not really allowed to
assassinate other CEOs, or burn warehouses of competition. This may sound
silly, but that’s how market competition played out in Russia during the
1990s (I’ll get back to Russia in a minute). Good competition, which leads
to socially optimal outcomes, is limited to such tactics as cutting
production costs, increasing product quality, and advertising (the last one
not particularly socially optimal in my view, but at least it’s legal).

Also, firms cooperate with other firms—their suppliers, for example. In
real life, businessmen work hard to create trust with their partners and
maintain reputations. It’s a bad long-term business strategy to be, or at
least appear as, completely self-interested.

Finally, the least amount of cooperation we see in international markets,
where such organizations as WTO are either fairly ineffective, or serve the
interests of the powerful countries.

The second reason why cooperation is key to our debate is that economy
cannot be separated from the rest of society, and how businessmen behave in
economic matters has a huge bearing on what happens outside the economy.

One connection is a spillover effect. Businessmen who become accustomed to
pursuing self-interest in the business sphere will become more selfish in
other ways. There is now a well-established experimental result that
teaching economics makes students less cooperative. Economics students are
much more likely to free ride in public goods games than students from any
other discipline. As a result, their inclusion in an experimental group
impedes the production of public goods and increases the amount of
resources used for punishing free riders—both not socially optimal results.
I don’t see any reason why this effect, amply documented in experimental
economics, should not operate in real life. I am sure it does.

Furthermore, self-interested businessmen who acquire great wealth will also
have an incentive and the means (since wealth is power) to change the laws
in ways that will suit them. They can buy, and in some cases intimidate or
simply murder (as in Russia during the 1990s) regulators, judges, and
politicians. In other words, they, or a substantial proportion of them,
will use their power to corrupt the moral foundations of the society as a
whole. There is no impenetrable, unbreakable glass wall between economy and
society. We use these concepts for analytical purposes, but we should not
forget that it’s just a convenience, not reality.

It is interesting that you are right now in Moscow, attending the Gaidar
Forum. Yegor Gaidar, of course was one of the most important architects of
the Russian economic collapse during the 1990s. Russia provides a good
illustration of the general principles that we are discussing.

Russian transition to market economy was managed by some of the best and
brightest Western economists. Instead of an economic miracle that the
Russians were promised, the result was the fall of GDP by more than a half,
immiseration of the 99 percent of the population, and huge wealth windfall
for 1 percent (as well as for the Western advisers, I might add). The
reasons are undoubtedly complex, but the most important one was the
introduction of the dominant economic ideology. Everybody in power—former
party bosses, organized criminals, new entrepreneurs (little different from
mafia thugs), and the Western economists pursued their private interests.
Those few who retained morals were either killed, or made completely
powerless. Of course, a lot of self-interested guys got killed, too. The
result was economic collapse and social dissolution—Russia was a failed
state by the mid-1990s. It was an example of failure of cooperation on a
large scale, and massive production of public “ills.”

Now this is just an illustration. My main argument is logical, not
empirical. You cannot have a well-functioning society in which everybody,
or even a majority, are pursuing solely self-interest. This applies to the
whole society, and to its parts, including the economy. Good institutions
are not going to work in the absence of internalized prosocial values held
by a sufficient number of people. Telling anybody to pursue their naked
self-interest is not a recipe for greater social good. It’s a recipe for
social dissolution.

-- 
*Rasigan Maharajh, PhD.*
Chief Director: *Institute for Economic Research on Innovation*, Tshwane
University of Technology, RSA.
Nodal Head: Department of Science and Technology and National Research
Foundation *Centre of Excellence in Scientometrics and Science, Technology
and Innovation Policy*, RSA.
Professor Extraordinary: *Centre for Research on Evaluation, Science and
Technology, *Stellenbosch University, RSA.
Associate Research Fellow: *Tellus Institute*, Boston, USA.
Chairperson: Southern Africa Node of the *Millennium Project*,  RSA.

Postal Address: 159 Nana Sita Street, Pretoria CBD, 0002, Tshwane, Gauteng,
South Africa
Phone: +27 12 3823073
www.ieri.org.za
www.tellus.org
www.sampnode.org.za

-- 
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