Where have the supporters of capitalism gone?

 

Cartoon by Peter Nicholson from “The Australian” newspaper: www.nicholsoncartoons.com.au

Some erstwhile supporters of capitalism probably don’t realize that they have gone missing. They still support private ownership of property and businesses, and may claim to see merit in the profit motive. However, they overlook that capitalism also involves “prices, production, and the distribution of goods that are determined mainly by competition in a free market”.

The quoted words are from the Merriam-Webster definition of capitalism. Use of a definition from an American dictionary seems appropriate because the supporters of capitalism who have gone missing seem to me to be mainly Americans. That is unfortunate because Americans were once the world’s strongest supporters of capitalism.

In Australia, most of the people I hear talking about capitalism seem to use it as a term of disparagement. The people who support capitalism talk about free enterprise and economic freedom.

I have the impression that it is fairly common outside of America for supporters of capitalism to avoid using the word because it is commonly viewed as a term of disparagement. That may stem from the word’s origins. When I was growing up, someone told me that Karl Marx had invented the word. That is not correct. Marx rarely used the word. He preferred to describe capitalism as “the capitalist mode of production”. Nevertheless, even in America the term was apparently considered to be a socialist expression until well into the 20^th century.

In the latter half of the 20^th century, the strongest supporters of capitalism had no qualms about using the word. Milton Friedman used the word in the title of a book, Capitalism and Freedom. Friedman made it clear that he was writing about “competitive capitalism – the organisation of the bulk of economic activity through private enterprise operating in a free market”. Ayn Rand used the word in the title of a book, Capitalism: The Unknown Ideal. She defined capitalism as “a social system based on the recognition of individual rights, including property rights, in which all property is privately owned”.

Where have America’s supporters of capitalism gone? Johan Norberg prompted me to think about that question as I was reading his latest book, The Capitalist Manifesto: Why the Global Free Market Will Save the World. This book is a follow-up to In Defence of Global Capitalism, which Norberg wrote about 20 years ago. Globalization has now become a dirty word to many erstwhile supporters of capitalism, but Norberg remains a strong defender of global capitalism.

Who opposes the free market?

One of the most interesting contributions of Norberg’s new book is his account of the changing opposition to the ideal of a global free market. Norberg wrote In Defence of Global Capitalism to counter the arguments of left-wing activists who mistakenly believed that free trade, foreign investment, and multinational corporations were making the world’s poor even poorer. George Monbiot, Oxfam, Bono etc. eventually began to see some merit in free trade, but opposition then migrated to economic nationalists on the conservative side of the political spectrum.

Norberg suggests that the opponents of globalization share an underlying misconception that it is a zero-sum game – someone’s gain is another one’s loss:

“The worldview is the same, the roles are just reversed – twenty years ago free trade was considered bad because we exploited them, now it is considered bad because they exploit us.”

Norberg seems to assume that most readers will already understand why free trade is a positive-sum game – beneficial to both importers and exporters. He uses colourful illustrations to reinforce the point:

“Free trade allows the farmer to grow a new mobile phone in his wheat field, the textile worker can sew a new motorbike and the author can (if lucky) write a holiday trip to Tuscany.”

The author argues that free enterprise is primarily about “opening the dams of human creativity – to let everyone participate and test their ideas and see if they work”.

The opposition of economic nationalists to free trade is associated with the narrative that during the early years of the 21^st century, cheap imports from China caused deindustrialization and wage stagnation in the United States.  Norberg’s most important contribution seems to me to be in challenging that narrative. He makes the point that the loss of jobs in manufacturing is attributable largely to automation rather than import competition. He suggests that the slow-down in wages growth in the US dates from the mid-1970s, reflecting a necessary correction of cost levels because wages had previous been growing faster than productivity. The Rust Belt apparently lost more jobs in the decades before globalization reached the US, than it has in recent decades. The share of manufacturing jobs in the US declined more rapidly prior to 2001, when China was admitted to the World Trade Organisation (WTO), than it has in the decades since then.

 Fear of China

Economic nationalists suggest that the involvement of China in international supply chains has been particularly problematic because of the theft of technology. Norberg points out that China has been by no means unique in that respect. The US itself apparently once had a policy of smuggling inventions and bribing European artisans to reveal their secrets. There is evidence that the Chinese government has a relatively good track record in following WTO rulings relating to disputes about intellectual property and government subsidies.

Norberg acknowledges the potential for Chinese investment in digital and physical infrastructure to pose a security threat because the Chinese government views Chinese companies as its agents. He points out that this does not mean that the US and its allies were wrong to encourage China to open up to the outside world. He suggests that if China had not opened up, it is much more likely that the Chinese people would have generally perceived Westerners as irreconcilable opponents. He fears that use of trade barriers to isolate China could strengthen the most reactionary and nationalist forces in China.    

Leviathan’s helpers

Where have the capitalists gone? Many business owners and executives now seem to spend less time on conventional entrepreneurial activities than on seeking to ingratiate themselves with politicians and bureaucrats who are engaged in active industrial policy.  

The chapter in The Capitalist Manifesto entitled “Picking Losers” should be of particular interest to Jim Chalmers, Australia’s Treasurer. In his article in The Monthly (Feb 2023) Chalmers wrote:

“As the influential economist Mariana Mazzucato has explored in her work, markets built in partnership through the efforts of business, labour and government are still the best mechanism we have to efficiently and effectively direct resources.”  

Johan Norberg has quite a lot to say about Mariana Mazzucato’s naïve views. I will not attempt to provide a summary here because it might spoil the fun for readers. However, I particularly liked this sentence:

 “Governments are bad at picking winners, but losers are good at picking governments.”

That observation seems particularly relevant to Australia at present.

Concluding remarks

In focusing on reasons why support for capitalism has declined, I have failed to mention many of the virtues of capitalism discussed in The Capitalist Manifesto. For example, I was particularly interested in what Johan Norberg had to say about the relationship between capitalism and various aspects of happiness, in his chapter on “the meaning of life”.

I began by noting that many supporters of capitalism are reluctant to use the word because socialists have historically used it as a term of disparagement. I commend Johan Norberg for writing a capitalist manifesto. In doing that he is following in the footsteps of great advocates of economic freedom who had no qualms in talking about the virtues of capitalism.

In this book, Norberg has provided an interesting account of how many erstwhile supporters of capitalism have come to oppose global free markets. The most important contribution of the book, in my view, is the challenge it offers to the narrative that cheap imports from China have caused deindustrialization and wage stagnation in the United States.

To what extent do international differences in economic freedom reflect people's values?

 

This is a companion piece to the preceding post in which I considered the extent to which international differences in personal freedom reflect people’s values.

The extent to which international differences in economic freedom reflect different values is of interest because it has bearing on the extent of popular support likely to be given to policy proposals involving expansion or restriction of economic freedom. If people feel that existing economic policy regimes are aligned with their personal values, they are less likely to support radical change.

The accompanying graph suggests the existence of a positive relationship between an index of facilitating values and economic freedom. As suggested in the label of the horizontal axis, the index of facilitating values reflects the priority that people in different countries place on autonomy, and the extent of interpersonal trust in different countries.

Indexes

I am not aware of any other index of values facilitating economic freedom similar to the one I constructed in preparing the graph, even though there has been a substantial amount of previous research undertaken on cultural values supporting economic growth and institutional change. (Nicholas Moellman and Danko Tarabar have referred to some relevant literature in their article, ‘Economic Freedom Reform: does culture matter?’, Journal of Institutional Economics (2022), 18, 139-157.)

The priority people place on autonomy seems likely to be important in facilitating economic freedom because respect for individual autonomy implies respect for individuals engaged in commerce, particularly innovators. Trust of strangers seems likely to be important in facilitating economic freedom because it reduces the tribal instinct to seek to use the powers of the state to advance the interests of group members at the expense of other groups.

I have used Christian Welzel’s autonomy index to measure autonomy. This index uses three items in the World Values Survey (WVS) which ask respondents their views about desirable child qualities. Autonomy is considered to be valued more highly by those who independence and imagination as desirable child qualities but do not consider obedience as such a quality. (See: Christian Welzel, Freedom Rising, 2013). I used an updated version of the index based on the latest round of the WVS (2017-2022).

Welzel’s generalized trust index was used to measure interpersonal trust. This index gives higher weight to trust of strangers than to trust of family. I reconstructed the index for the latest round of the WVS by combining items covering close trust (trust of family, neighbours, and people you know personally), unspecified trust (whether most people can be trusted) and remote trust (trust of people you meet for the first time, people of another religion and people of another nationality). Unspecified trust was given double the weight of close trust, and remote trust was given three times the weight of close trust.

In constructing the facilitating values index, autonomy was allocated 75% of the weight and generalized trust was allocated 25%. Those weights were chosen on the basis of regression analysis using the autonomy and generalized trust indexes as explanatory variables to explain economic freedom. (Researchers seeking further information about the methodology used in constructing this index are welcome to contact me.)

 The Fraser Institute’s economic freedom index incorporates a large number of indicators relating to size of government, legal systems and property rights, sound money, freedom of international trade and regulation.

Discussion

My focus is on the outlier data points in the accompanying graph, and particularly on those countries which have substantially lower or higher economic freedom than might be predicted on the basis of values facilitating economic freedom.

One of the first things readers may notice in the graph is that values facilitating economic freedom are shown to be higher in China than in the U.S. and Australia. That may seem surprising if Geert Hofstede’s analysis, or your knowledge of cultural heritage, has led you to expect Chinese people to be much less individualistic than Westerners. If you need to be persuaded that many Chinese people have an individualistic perception of human flourishing, you might like to read an article I wrote on that topic in 2021.

While you are thinking about China, you might like to compare economic freedom in that country with that in Singapore, Hong Kong, and Taiwan. The most obvious reason why the latter jurisdictions have greater economic freedom is because they have adopted market-friendly ideologies.

Similarly, adoption of market-friendly ideologies explains why Albania has substantially greater economic freedom than Iran and Libya, and why Chile has greater economic freedom than Argentina and Venezuela.

Conclusion

The existence of values facilitating economic freedom helps to explain why some countries have higher economic freedom than others. However, it seems that a substantial part of international differences in economic freedom can be explained more directly in terms of prevailing government ideologies which either support or oppose free markets.

Are you also a decentralist?

 

Max Borders shares his personal philosophy of life in his book, The Decentralist: Mission, morality and meaning in the age of crypto. His aim in doing that it to persuade readers to become decentralists.

I decided that I was already a decentralist before I had finished reading the introduction. The fundamental point is that decentralism is required because individuals need to pursue happiness in different ways. The mission of decentralists is to create conditions for radical pluralism – a garden of forking paths. Sometimes we flourish by walking together; at other times we need to take different paths in order to flourish. The garden of forking paths creates opportunities for people to blaze different trails.

There is no easily accessible summary of the main principles of decentralism espoused in the book, so I have attempted to write one:

• In navigating our lives, we recognize the existence of centralized political authority while fostering parallel consent-based systems which have potential to underthrow (rather than overthrow) centralized authority.
• We choose persuasion in preference to compulsion.
• To better govern ourselves and to communicate with moral suasion, we recognize that human minds are governed by emotion and instinctual energy, as well as by reason.
• We create and foster “flow systems” with a high degree of flexibility and eschew attempting to control or regulate society.
• We advocate an evolving technological ecosystem that can bring about a decentralized transformation in governance, finance, enterprise, aid, and even defence.
• We aspire to moral practice (excellent character) that encompasses non-violence, integrity, compassion, stewardship, and rationality.
• We advocate the daily practice of mindfulness to help guide us in our commitments to realize the consensual society.
• We believe that the potential for widespread acceptance of the values of decentralism is the culmination of humanity’s stepwise journey from a focus on survival values, through a range of intermediate stages which have provided expanding opportunities for human flourishing.
• We accept and seek to apply the principles of a free market.
• We seek to make our lives meaningful at an individual level by learning to tell the “story of me” (Who? What? Why? Where? How? When?) and at a social level, “the story of us” (development, mutual understandings, shared conceptions of the good).

I agree with those principles. Max Borders persuaded me a few years ago to look forward to the social singularity. Hopefully the ethical principles he advocates for the age of crypto will help that vision to be achieved.

Some ideas in The Decentralist seem to me to be wacky but they are not central to the ethos of decentralism. I strongly disagree with the suggestion that we should dispense with “the idea of truth as something to be discovered in the world instead of experienced by the subject” (p 123). An untrue story is not made true by being widely accepted and told frequently. We cannot prevent reality from biting our bums merely by embracing delusions about it.

The book is easy to read. The digital gimmicky of the presentation style will no doubt appeal to many readers. Each chapter elaborates a number of concepts corresponding to the chapter number. So, in Chapter 1, we have “one revolution”, in Chapter 2, “two hands”, in Chapter 3, “three governors”, and so forth. Those who would prefer to read a book covering a similar range of issues, and advancing similar views using a more conventional style of scholarly discussion, are welcome to read my book, Freedom, Progress, and Human Flourishing.

From my perspective, the most interesting chapter of The Decentralist is Chapter 3, which considers implications for communication of classifying people as thinkers, relaters, and movers, depending on whether their minds are governed primarily by their heads, their hearts, or gut instincts. I had previously been introduced to the idea that humans have brains in hearts and guts as well as heads, and should seek alignment between them. When we speak metaphorically of following our hearts, keeping cool heads, and being gutsy, we are expressing ideas that are deeply entrenched in human culture (and even anatomy, perhaps). I was also aware of marketing techniques appealing to emotion and instinct. However, I had not previously given explicit consideration to the potential for normal persuasive communications to benefit from attention to emotional and instinctive needs of readers, as well as to their need to be given reasons to change their minds.

This book, itself, combines appeals to emotion, reason, and instinct in persuasive communication. For example, the introduction appeals to emotion in its discussion of an individual’s desire to be happy, it appeals to reason in its discussion of broader aspects of human flourishing, and it appeals to instinct in recognizing the importance of action in pursuit of the differing goals of individuals. The metaphor of a garden of forking paths seems to me to be a wonderful way to combine those concepts.

Conclusion

The Decentralist strongly supports the view that individuals have greatest opportunities to flourish under conditions where they are free to choose for themselves which path to take. The personal philosophy that Max Borders espouses in this book will hopefully persuade many more people to adopt the ethics of decentralism.

What is the best management metaphor?

 

Did you know that the word ‘metaphor’ is itself a metaphor? I just learnt that the word is a metaphor for carrying something beyond – it combines meta (beyond) and phoro (to carry).

Metaphors are ubiquitous.

The function of metaphors (together with similes and analogies) seems to be to assist conscious comprehension of the real world, and communication about it. It is possible to believe, as I do, that we need metaphors to consciously comprehend and communicate what we experience, while still maintaining that we have direct experience of the real world. In our attempt to understand this process of conscious comprehension and communication it is common to use the metaphor of a mind that creates maps or models of reality. However, if we are wise, we keep reminding ourselves that the map is not the territory, and the model is not reality.

I am focusing here on management metaphors because a few weeks ago I was struck by the thought that the potential for competition between use of sporting and musical metaphors in a workplace could be a source of humour. At the time I was trying to think of a topic for a humorous speech to present at Toastmasters. The speech turned out to be somewhat entertaining rather than uproariously funny, but the process of preparing it led me to think more deeply about management metaphors.

The story

The speech began with Sam Musico, who had just been recruited to the firm, being taken to meet the Boss in his office. As was his custom, the Boss asked him what sport he followed. Sam replied that he didn’t follow any sport, he was interested in music. The Boss then leaned on his bookcase, and looked Sam up and down, before saying:

“That’s OK, Sam. Just keep your eye on the ball. I hope to see you kick lots of goals!”

Asked later if he knew what the Boss was talking about, Sam said:

“I think he means to say that he wants me to stay in tune. And he hopes to see me become a virtuoso!”

Anyhow, to cut the story short, Sam did very well when working in our firm. After a few years, he left us and went off to play in the big league, and became a highly successful manager. One day, when we were discussing who to invite to speak to our annual management seminar, the Boss said: “Sam had become a management maestro. We should invite him.”

So, we asked Sam to talk on the topic: How to become a management maestro.

Sam began his speech by quoting a famous management guru who once wrote: 

A successful manager of a business is like “the conductor of a symphony orchestra, through whose effort, vision and leadership, individual instrumental parts that are so much noise by themselves, become the living whole of music.”

Then Sam told us he had a different view. He read us a poem he had written:

“An orchestra doesn’t need a maestro,

The gestures he makes are just for show.

The players focus on the composer’s score,

But your audience wants you to do much more.

Like a jazz band, the success of your enterprise,

Depends on players learning to improvise.

So, the metaphor I’m here to broach,

Is the ethos of a football coach”.

After the seminar was over, the Boss said: “You know, I think Sam might have learnt a thing or two about management while he worked here!”.

The message

The purpose of my speech was to entertain rather than to argue that the sports coach metaphor is the best management metaphor under all circumstances.

The management guru, whose words are quoted above, was Peter Drucker (The Practice of Management, 1954). I left his name out of the speech because the quote was selective. Drucker went on to say: “But the conductor has the composer’s score: he is only interpreter. The manager is both composer and conductor”.

The orchestra metaphor might be appropriate in some contexts. In proposing his orchestra metaphor, Drucker might have had manufacturing industry in mind. It could be argued that, from a management perspective, a manufacturing firm has more in common with a symphony orchestra than with a jazz band, or football team. This video of dancing robots assembling cars may help make the point.

The actual role of the maestro is another issue lurking in the background. The maestro’s responsibilities extend beyond waving his arms around during an orchestral performance. Henry Mintzberg explains that in his blog post, The maestro myth of managing, which provided some inspiration for Sam’s poem. In some respects, the maestro’s role is similar to that of a football coach.

My bottom line (if I may add a business metaphor to the mix) is that the sports coach metaphor is relevant to many aspects of management. However, to claim that the sports coach metaphor is always better than other management metaphors would be like claiming that a map of Australia is always better than other maps. Just as the best map to use depend on the territory that you are considering, the best management metaphor to use depends on the context that you are considering.

Would Chinese people accept that human flourishing is inherently individualistic?

 

The question I have posed for myself has been prompted by a reader of my book, Freedom, Progress, and Human Flourishing. He asked how I would respond if someone offered to pay me to write an edition of the book for Chinese readers. Would I say that the exercise would be pointless because few Chinese readers are likely to be receptive to the ideas in the book? Or would I say that a Chinese edition would need to include a discussion of additional constraints holding back individual flourishing in the PRC?

My book was written primarily for readers living in the Western liberal democracies. It presents human flourishing as an individual aspiration and endeavor, involving the exercise of practical wisdom. I suggest that it is ultimately up to individuals to use their reasoning powers to form their own judgements about the basic goods of a flourishing human. I seek to persuade readers that a flourishing person manifests wise and well-informed self-direction, has good health and psychological well-being, enjoys positive relationships with others, and lives in harmony with nature. I argue that progress occurs when there are growing opportunities for individuals to flourish. Economic growth counts as progress to the extent that self-directed individuals aspire to have improvements in their living standards. (You can read a little more about the book here, and listen to me talk about it here.)

Is Chinese culture opposed to individualism?

Some research on individualism and collectivism may suggest that Chinese people would tend to adopt a collectivist, top-down view of human flourishing, rather than an individualistic, bottom up, view. However, the World Values Survey (WVS) does not support the view that Chinese people are too preoccupied with filial piety, altruism, and obedience to have individual aspirations. Data from the 2017-2020 wave of the WVS suggest that the percentage of people in China who say that one of their main goals in life is to make their parents proud (23%) is not particularly high; corresponding figures for other jurisdictions are Taiwan (27%), Hong Kong (15%), Singapore (28%), Australia (26%) and U.S. (31%).  The percentage in China who identify independence as a desirable child quality is relatively high (78%); corresponding figures for other jurisdictions are Taiwan (68%), Hong Kong (55%), Singapore (56%), Australia (52%) and U.S. (55%). The percentages who identify unselfishness, good manners and obedience as desirable child qualities are not particularly high (29%, 84% and 6% respectively) by comparison to Taiwan (23%, 74% and 9%), Hong Kong (11%, 73% and 9%), Singapore (27%, 79% and 17%), Australia (42%, 84% and 19%) and U.S. (28%, 48%, and 20%).

It is not difficult to find aspects of Chinese cultural heritage that imply an important role for individual self-direction. The Daoist philosophy of skill is directly relevant to question of what nature tells us about how we can flourish as individuals. There is a relevant post about the Laozi, Zhuangzi and Liezi on this blog.

Cultural support for economic growth

The discussion of determinants of economic growth in Chapter 5 of my book suggests that aspects of culture that are favourable to entrepreneurial innovation include interpersonal trust, respect and tolerance, and individual self-determination. WVS data suggests that the percentage of people who consider that most people can be trusted is relatively high in China (63.5%) by comparison with Taiwan (31%), Hong Kong (36%), Singapore (34%), Australia (48%) and U.S. (37%). The percentage in China who identify tolerance and respect for other people as a desirable child quality (60%) is not particularly low; corresponding figures for other jurisdictions are Taiwan (73%), Hong Kong (70%), Singapore (64%), Australia (80%) and U.S. (71%). 

A relevant indicator of self-determination in the WVS is the data on ratings of the extent that survey respondents feel they have a great deal of freedom of choice and control over their lives, or alternatively that what they do has no real effect on what happens to them. On the10 point scale, the average scores of Chinese respondents (7.0) were similar to those of Taiwan (7.3), Hong Kong (6.6), Singapore (6.8), Australia (7.5) and U.S. (7.7).

Economic freedom

My discussion of determinants of economic growth also emphasizes the importance of economic freedom and a prevailing ideology that supports economic freedom. Improvements in economic freedom contributed to the high rates of economic growth experienced in China in recent decades. However, the Fraser Institute’s ratings of economic freedom suggest that the process of economic liberalization has now stalled, leaving China’s economic freedom rating for 2019 (6.5 on the 10-point scale) far lower than that of Taiwan (8.0), Hong Kong (8.9), Singapore (8.8), Australia (8.2) and the U.S. (also 8.2).

Productivity growth in China has slowed considerably over the last decade, according to  World Bank and IMF research. IMF estimates suggest annual productivity growth of 0.6% from 2012 to 2017, much lower than the average of 3.5% in the preceding five years (reported by the WSJ). It seems unlikely that China will be able to maintain high GDP growth rates in the absence of substantial economic reforms to promote greater economic freedom.

Ideological constraints

The prevailing ideology of governance in China, Marxism–Leninism, was imported from the West. This one-party state ideology was developed by Joseph Stalin in Russia the 1920s.  The current system of government - with the communist party bureaucracy guiding the state bureaucracy at all levels - was copied from the Soviet Union.

Although the evidence discussed above suggests that people living in the PRC tend to have as individualistic a view of human flourishing as people in the U.S and Australia, it is clear that the leaders of the Chinese government do not recognize fundamental rights that support individual flourishing.

The Myth of Chinese Capitalism, by Dexter Roberts, provides an insightful account of the ideological constraints currently limiting human flourishing in China. The government of the PRC does not even
recognize the rights of people to choose where to live, or to own land:

“Despite huge progress in wiping out poverty, the countryside still has large numbers of poor people and incomes continue to fall behind the rest of the country. This unfortunate fact is in part because of the hukou system, which restricts rural people’s ability to fully integrate into the cities. Equally responsible, however, are the continuing limits on farmers’ rights to the land. While they were given freedom to decide how to use the land they lived on, they were not given ownership.” (p 74)

It is common for local officials to acquire agricultural land for conversion to industrial and commercial use, with farmers being paid little compensation. The user rights are then sold at high prices to developers on the outskirts of cities.

The highest priority of the party-state is to stay in power. That involves a combination of responsiveness and repression to construct a “harmonious society”. Responsiveness takes the form of top-down efforts to reduce disparities in living standards. Repression occurs by suppressing dissident speech, extensive use of monitoring technology and a social credit system which rewards and punishes people based on aspects of their personal behavior that the government wishes to encourage or discourage.

 Daniels suggests:

“For years, China’s leaders have had an unspoken agreement with the people: they guarantee rising living standards and, in turn, the populace tolerates control by a nondemocratic and often unresponsive party.”

What happens if living standards do not continue to rise. Like many other analysts, Daniels is concerned that a “militarily powerful Communist Party facing widespread dissention at home might well seek to distract its citizens by lashing out in a hot spot in the region, such as Hong Kong, Taiwan, or the South China Sea” (p 191).

With the benefit of hindsight, it now seems obvious that gains in economic freedom that occurred in China over the last few decades were the efforts of an authoritarian government to harness market forces for its own purposes, rather than reforms undertaken in recognition of links between liberty and individual flourishing.

At the beginning of this article I offered some gratuitous advice to the leaders of China by quoting from some ancient writings by Lao-Tzu (Verse 57 of the Tao Te Ching). It seems appropriate to end this brief discussion of ideology with another quote from the same source:

“The more prohibitions you have,

the less virtuous people will be.

The more weapons you have,

the less secure people will be.

The more subsidies you have,

the less self-reliant people will be.”

Conclusions

Chinese people are not unduly preoccupied with filial piety, altruism, and obedience. They tend to have an individualistic view of human flourishing that is not greatly different from that of people in the U.S. and Australia. The contemporary culture of Chinese people tends to be favourable to the entrepreneurship likely to be necessary for living standards to continue to rise over the longer term.

However, the ideology of the party-state is much less favourable to ongoing improvement of living standards. Past gains in economic freedom reflected the efforts of an authoritarian government to harness market forces to lift productivity in response to aspirations of the people to enjoy higher living standards. The gains in economic freedom occurred because that suited the purposes of a communist party primarily interested in its own survival, rather than because its leaders had undergone an ideological transformation to become supporters of liberty. The ideological opposition to liberty of general secretary Xi Jinping now seems to be impeding the ongoing expansion of economic freedom that is needed to enable productivity to continue to rise.

Why should economists practice humanomics?

 

Adam Smith practiced humanomics. It came naturally to him. The famous pioneer of economic science did not need to pretend that humans have been programmed to maximize utility in order to develop his argument that economic specialization stems from a propensity in human nature to “truck, barter, and exchange”.

The word, humanomics, was coined by Bart Wilson, an experimental economist, and is explained in the book, Humanomics, Moral Sentiments, and the Wealth of Nations for the Twenty-First Century, which he co-authored with Nobel winner, Vernon Smith. In that book, humanomics refers to the very human problem of simultaneously living in the personal social world (which is the context which Adam Smith had in mind when writing Moral Sentiments) and the impersonal economic world (which is the focus of Wealth of Nations).

Some important aspects of human behavior cannot be adequately explained if we adopt the assumption, still common in much economic analysis, that individual human behavior is characterized by narrow self-interest. Vernon Smith and Bart Wilson found in their experimental work with people playing economic games that while self-interested utility maximization could explain individual behavior in simulated market contexts, it could not do so in social exchange contexts. In playing two-person trust games, people tend to be more other-regarding than most modern economists assume. I take that to mean that most people are sufficiently civilized and self-regarding to behave with integrity towards others – they see virtue in being trustworthy rather than opportunistic.

Deirdre McCloskey advances the argument for humanomics further in her recent book, Bettering Humanomics. She writes:

“A big part of our human behavior is thinking and talking about human action, not merely solipsistic and thoughtless reaction to, say, a budget constraint. Human action … is the exercise of free will, so typical of humans. It is in fact the free will about which theologians argue. Humanomics therefore goes beyond the artificially narrowed evidence of a silent, solitary, reactive, positivistic, predestined, observational behaviorism.” (p 5)

McCloskey argues that economists should engage in more philosophical reflection about what a speaking species does. The behavioral paradigm of stimulus and response does not adequately explain much of human behavior. Humans often think about the meaning of events before responding to them, and they often consciously explore the options that are available.

Innovation is an example of an economic activity that cannot be adequately understood within a behavioral paradigm that does not allow for thinking and talking. In this context, McCloskey mentions the important contribution of Israel Kirzner in pointing out that real discoveries cannot be pursued methodically – or they would be known before they are known. Innovation requires entrepreneurial alertness. McCloskey adds that a discovery “requires sweet talk to be brought to fruition”:

“An idea is merely and idea until it has been brought into the conversation of humankind”.

McCloskey presents a strong argument that humanomics is needed to explain the great enrichment – the massive improvements in standard of living that have occurred in many countries over the last 200 years. Those who have some familiarity with her trilogy of books on economic history – that should include everyone who is interested in the reasons why the people who live in some countries tend to be wealthier than those who live elsewhere - will not be surprised that she argues that ethics and rhetoric are the “killer app” explaining the great enrichment. She argues that a novel liberty and dignity for ordinary people, including the innovating bourgeoisie, explains the great enrichment.

For present purposes, the important point is that for economists to understand the economic growth process, with its massive implications for human flourishing, they need some knowledge of ethics and rhetoric – ideas in letters and literature that are studied in the humanities. McCloskey argues that if economists consider themselves to be serious scientists, they should use all relevant evidence that they can get their hands on. She makes the point thus:

“A future economics should … use the available scientific logic and evidence, all of it—experimental, simulative, introspective, questionnaire, graphical, categorical, statistical, literary, historical, psychological, sociological, political, aesthetic, ethical.” (p 66)

Many economists spend much of their time on “sweet talk” without being aware of it. I spent most of my working life trying to tell people that incentives matter and that they need to consider whether current institutions – the rules of the game of society – provide appropriate incentives. For example, I am fond of pointing out that if the rules of the game reward rent-seeking – individuals or groups seeking to have governments provide them with assistance at others’ expense - then potential beneficiaries will tend to spend more time rent-seeking and less time engaged in productive activities.

Economists engage in that kind of activity – labelled by some as preaching – because they think that ideas matter and that interests do not always prevail in determining government policies. In my view, people who are trying to obtain greater recognition of the role of institutions and incentives are walking in the footsteps of Adam Smith.

McCloskey might suggest that people like me should consider whether we give too much attention to the role of formal institutions – constitutions, laws, and regulations – and too little attention to ethics and ideology. In discussing the great enrichment she suggests:

“The important “institutions” were ideas, words, rhetoric, ideology. And these did change on the eve of the Great Enrichment”.

The only problem I have with McCloskey’s exposition of humanomics is her dismissal of happiness studies and behavioral economics. Her negative views on these areas of research sit oddly with her argument that economists should consider all available evidence. I agree that many people who are engaged in such research are paternalistic behavioralists, seeking to advise governments how to make people happier. However, I don’t think that provides sufficient reason to suggest that the findings of such research are no relevance to individuals who are looking for information to help themselves to flourish.

In my discussion of the findings of happiness research and behavioral economics in Chapter 7 of my book, Freedom, Progress, and Human Flourishing, I have tried to adopt a contractarian approach. That is the approach adopted by Robert Sugden, a self-confessed behavioral economist, and an admirer of the contractarianism of James Buchanan, in his book The Community of Advantage. Sugden notes that contractarian recommendations are “addressed to individuals as directors of their own lives, advising individuals how to pursue their own interests”.

I concur with the view of James Buchanan that the heartland of economics is considering human behavior in market relationships and other voluntaristic exchange processes. However, I can see no reason why anyone should consider Philip Wicksteed, or any other economist, who offers practical advice on avoiding common mistakes in decision-making, to be stepping beyond the realm of humanomics.    

When economists step outside their comfort zone of voluntaristic exchange processes, they certainly need to remember to take their bullshit detectors with them. That certainly applies in considering the findings of happiness studies and behavioral economics. It also applies in considering literary contributions, such as a book I read (and commented on here) about the significance for our understanding of happiness of Samuel Richardson’s 18^th century novel, Pamela.

Conclusions

Economists should practice humanomics because they can’t expect to be able to understand human behavior unless they do. Humans do not always behave as self-interested maximizers. It makes no sense to assume that human action always occurs at a subconscious level as an automatic response to stimuli. Individuals often think about the meaning of events, consider their options, and talk to others, before responding. Self-direction is integral to human flourishing.

In seeking explanations for human behavior, economists should not confine themselves to a focus on institutions and incentives. They should be open to considering all relevant information that they can get their hands on, including information on ethics, ideology, and happiness ratings.

What are innovation commons?

“An innovation commons is a system of rules for cooperation to facilitate pooling of information in order to maximize the likelihood of opportunity discovery”. That is how Jason Potts defines innovation commons in his book of that name.

Hopefully, that brings to mind hobbyists meeting in coffee shops, somewhere on the internet, or at backyard barbecues where they are tasting home brews and exchanging information about recipes. If so, you are on the track toward an understanding of innovation commons. If you have heard stories of successful entrepreneurs who obtained their most valuable ideas by interacting in similar ways, you might sense that innovative commons can be very important.

It might surprise you to learn that until recently few economists understandood the importance of innovation commons. Of course, those with an interest in technology would have read at some stage that Steve Jobs was once a member of the Homebrew Computer Club, and know of similar stories about other entrepreneurs who started as hobbyists or enthusiasts exchanging information freely with people with similar interests. However, it is one thing to know such stories and something quite different to realize that your professional understanding of the innovation process needs an overhaul.

Economists have thought of innovation in several different ways that view a single organization or individual as a prime mover. Innovative firms allocate resources to research and development, which leads to the launching of new products or adoption of cost-reducing technologies. Joseph Schumpeter’s bold entrepreneurs play the central role in innovation, leading to a dynamic process of creative destruction. Israel Kirzner’s innovative entrepreneurs are alert to profit opportunities. Edmund Phelps’ grassroots innovators are struck by new ideas, and then become investigators, experimenters and managers of innovation.

You might think that economists should be excused for overlooking the importance of innovative commons because they are a relatively new phenomenon. Jason Potts makes the point that common-pool innovation has existed since the beginning of market capitalism. He cites discussion of the Republic of Letters by Joel Mokyr, an economic historian. The Republic of Letters set up norms and incentives that supported a market place of ideas among the educated elite in Europe in the latter part of the 17^th and early part of the 18^th centuries (for a brief summary see my review of The Culture of Growth). In The Enlighted Economy, Mokyr makes a strong case that in Britain during the 18^th century the ‘legitimization of systematic experiment carried over to the realm of technology’. He suggests that the proliferation of provincial ‘philosophical’ societies discussing practical and technical issues often served as clearing houses for useful knowledge between natural philosophers, engineers and entrepreneurs (p 48).

Recent examples of areas of technology where innovation commons are important include blockchain, civilian drone technology, AI and gene editing.

Jason Potts’ own innovative contribution has been to develop an economic framework to explore the collaborative processes through which information comes to be available in a form that a potential entrepreneur can discern as a profit opportunity, if sufficiently alert. The framework Jason has developed contributes to understanding of the knowledge, coordination and governance problems associated with innovation commons. In developing that framework, he draws heavily on insights of Friedrich Hayek about the importance of distributed knowledge, and insights of Elinor Ostrom about governance of commons.

Innovation involves a knowledge problem because relevant information is distributed so that each person with relevant expertise can only know part of the picture, and there is great uncertainty about how that information might be useful. Innovation commons enable individuals with expertise to cooperate to pool information and discover opportunities. The formation of such commons is ad hoc and rules for governance develop spontaneously to promote cooperation.

Innovation commons tend to be temporary. Once they have created information about entrepreneurial opportunities, that valuable resource is likely to be exploited by some member who can effectively capitalize on it. At that point the conventional model of entrepreneurship comes into its own, and the commons collapses to some other institutional or organizational form.

Much of the book is taken up by discussion of rules of innovation commons, institutions such as industry organisations and a critique of conventional approaches to innovation policy (public investment in innovation and building infrastructure for innovation).

There is also an interesting discussion of ways to combat an increasing tendency for enemies of innovation to prevent it, thus contributing to a slowdown in productivity growth, particularly at the technology frontier. The enemies of innovation present themselves as having concerns with safety, sustainability, tradition, fairness, justice etc. even when their intention is to avoid the losses they are likely to incur from disruption of existing technology.

Who will engage those enemies? This is a collective action problem: the costs are borne individually, but the benefits are an industry-specific public good that accrue to all who follow.

In some instances, the first mover can capture sufficient benefits to make it worthwhile to engage the enemies of innovation. Uber may have done that with its ride-sharing technology.

Jason suggests that governments may also help. One role he suggests is promoting collective learning to demystify a new technology. He mentions public broadcasting in that context, but public broadcasters seem to have been more comfortable helping the enemies of innovation. At a more ambitious level, he suggests that governments should work toward “a social contract, culture and institutional system that are tolerant of innovation and prepared to engage with its enemies”. Good luck with that!

Jason also suggests that innovative commons can play a role in creating a large pool of participatory stakeholders, each with a vested interest in developing the technology and its institutional (regulatory) framework. Examples include open-source software and technologies that have emerged from hackerspaces, such as 3D printing and cryptocurrencies.

Are innovative commons likely to result in a fundamental change in society?

Jason Potts’ answer:

“The innovation commons—including the adaptive behaviors and the institutions that compose it—are … a natural part of an open, evolving, market economy. They are not prima facie evidence of an emerging turn to a new type of more cooperative economic society.”

That is probably right! Nevertheless, as previously discussed here, it is possible to conceive of circumstances in which new technologies that are evolving in innovation commons - blockchain technology and decentralized collaborative organizations – could result in some quite fundamental changes in society.

Is cultural change responsible for a long term decline in productivity growth?

The story of cultural change that Edmund Phelps tells in Mass Flourishing has a happy beginning and a sad ending.

Phelps’ cultural story of the advent of rapid economic growth in Britain and America in the 19^th century is much like that of Joel Mokyr and Deidre McCloskey (discussed here and here). The main difference is Phelps’ greater emphasis on grassroots innovation within firms.

Phelps makes a strong case that Joseph Schumpeter, famous for his theory of entrepreneurship, over-emphasized the importance of exogenous scientific discoveries (external to innovating firms) as a source of innovation. Phelps probably goes too far in downplaying scientific advances, but his story about the importance of grassroots innovation to the emerging modern economies seems highly plausible. He suggests:

“a modern economy turns people who are close to the economy, where they are apt to be struck by new commercial ideas, into the investigators and experimenters who manage the innovation process from development and, in many cases, adoption as well” (p 26).

Phelps describes a modern economy as “a vast imaginarium – a space for imagining new products and methods, imagining how they might be made, imagining how they might be used” (p 27).

A substantial part of the book is devoted to a discussion of socialism, as practiced in the Soviet Union, and corporatism, as practiced in Italy and Germany in the 1930s. The contemporary relevance of that discussion become relevant later in the book in his discussion of reasons for the decline in productivity growth that seems to have occurred in the U.S. since the 1960s.

Phelps’ focus on the U.S. economy as the main driver of technological progress seems appropriate. He notes that European countries experienced high productivity growth while playing the technological catch-up game, but their productivity growth has generally been lower than in the U.S. in recent decades. He attributes their lack of dynamism to ongoing corporatism over the decades since World War II. The classical corporatist model - involving state direction of industry and promotion of solidarity and social responsibility – has been augmented with codetermination of labour and capital (instead of owner-control) and stakeholderism (instead of a focus on income generation).

The author suggests that corporatism has also grown in the United States. Industries that have been subject to government policy interventions have been affected by a new populist type of corporatism as businesses have sought to use their political influence to mould government regulation to their advantage. The result is a “densely interconnected system of mutually beneficial relationships between private and public’, which tends “to redirect the economy’s innovation toward politicians”. He notes that supporters refer to that system as industry policy and detractors refer to it as corporate welfare. It should be referred to as rent-seeking.

The cultural change that Phelps sees as leading to a decline in economic dynamism is not fully reflected in changes in economic freedom indexes. He sees a deterioration in the “core functioning” of modern economies. This involves, among other things:

• Managerialism, short-termism and the rise of a “money culture” in business, with wealth-seeking turning people away from innovation.
• A rise in the litigiousness of American society - people who devote their time and energy to suing one another have less time and energy for innovation.
• Excessive patent protection resulting in an economy clogged with patents – “a creator of a new method might require as many lawyers as engineers to proceed”.
• More people aspiring to attain social station rather than to achieve something.
• Adolescent culture – less willingness to accept temporary austerity in the quest for achievement; less ability to concentrate intensely (unable to resist distractions of social media).
• A resurgence of traditional values putting more pressure on business to allow people to work from home etc.

Has this cultural change in U.S. business caused a decline in the long-term productivity growth rate? If so, what can be done about it?

In a series of posts written in 2015, I was sceptical that there had been a decline in long term productivity growth. I suggested that the slow-down in measured productivity growth in the U.S. and some other countries may be attributable, in part, to difficulty in measuring the outputs of the information and communications technologies (ICT) industries. I also noted research findings suggesting a technological diffusion problem, rather than a slow-down in technological advances, with productivity growth of global frontier firms remaining relatively robust.

The addition of a few more years of data seems to lend support to the view of the historical pessimists that there has been a long-term decline in U.S. productivity growth. And Phelps’s cultural change explanation does seem plausible.

Unfortunately, the remedies that Phelps offers are less plausible. He suggests that governments can act to restore dynamism if they become aware of its importance and gain some practical knowledge of how innovation is generated. He suggests:

“Nations will have to push back against the resurgence of traditional values that have been suffocating in recent decades and revive the modern values that stirred people to go boldly forth toward lives of richness”.

Edmund Phelps seems to be hoping that a reinvented corporatism, perhaps inspired by the starship Enterprise, will foster grassroots innovation and be less prone to rent-seeking than the industry policies it replaces. Good luck with that!

I prefer to put my faith in the potential for new technologies to disrupt and subvert populist corporatism.

Is subjective-predictive morality consistent with the template of individual responsibility?

This question arose while I was reading Josh Bachynski's book The Zombies, subtitled On Morality.

Josh explains subjective-predictive morality as follows:

“You all know and have seen it (and used it too!). It is the simple morality we commonly use when giving a gift, throwing a party, or trying to predict and ensure how well things will end up for others. When we are practically good. When we seek to help and not hurt others, for no other reason than this is good. What we currently call being courteous or nice, for the sake of just being courteous or nice. When we are not trying to do what’s “Right” per se. When we are trying to do what’s right by them”.

Doing right by others is encompassed in the ethics of doing right by yourself. What is good feels good.  Josh explains the process of subjective evaluative judgment as involving (1) pleasant or unpleasant feelings (2) cognitive reactions concerning the value of those feelings (3) predictions as to whether we will have reason to regret the action contemplated. Josh suggests:

“This is the way we naturally insert quality control into our valuations.”

He goes on to observe:

“As it turns out, in searching for the moral, we have actually made a powerful discovery. And this is in what is also rational or prudent”.

I suggest that readers who are interested in learning more about Josh’s philosophy should read Leah Goldrick’s review at Common Sense Ethics, which contains a link to her interview of Josh, and then begin to read the book itself. This is a long book. I found the authors chatty writing style entertaining at first, but tedious after the first few chapters.

Josh Bachynski’s ethics of doing what is right by oneself and others seems quite similar to the template of responsibility, advocated by Douglas Den Uyl and Douglas Rasmussen in The Perfectionist Turn. The ethics of responsibility is based on “the existential fact that we must make something of our lives”. This is explained in a passage I have quoted previously:

“For the template of responsibility, the basis for determining worthiness is human flourishing or wellbeing of some sort. Its ultimate value is integrity. Integrity expresses itself interpersonally in honour but when applied to the agent herself, the term ‘integrity’ signifies a coherent, integral whole of virtues and values, allowing for consistency between word and deed and for reliability in action”.

There are some differences between the two approaches. Pleasant and unpleasant feelings are not given a great deal of prominence in Den Uyl and Rasmussen’s view of human flourishing. They define human flourishing as consisting of “activities that both produce and express in a human being an actualization of potentialities that are specific to the kind of living thing a human being is and that are unique to each human being as an individual”. At one point, Den Uyl and Rasmussen suggest that “an objective account of human flourishing can be characterized as a life of right desire”. They argue that the value of something to a person “is not necessarily a mere matter of “its being desired, wanted, or chosen” because a person “is more than a bundle of passions and desires”. That is still consistent with the view that emotions such as joy and disgust provide important information to help us to decide what we value.

Another possible source of difference is in respect of naturalism. From my reading of The Zombies, it seems likely that Bachynski would be suspicious that Den Uyl and Rasmussen’s teleological naturalism could be seeking to perpetuate ancient errors about human nature that scientific advances have given us reasons to question. I don’t think such suspicions would be well-founded because Den Uyl and Rasmussen present a view of human flourishing that is explicitly individualistic, agent-relative and self-directed.

As I see it, the differences between the philosophical approaches discussed above have parallels in the differences between some psychological therapies. Subjective predictive morality seems to have much in common with rational emotive approaches (REBT) in which people use reasoning to moderate their emotional responses. The template of responsibility seems to a lot in common with an acceptance and commitment approach (ACT) in which people ask themselves how they can actualize their potential in the given situation to act in accordance with their values, whatever their current emotional states might be. Perhaps there may also be parallels in the differences between philosophic approaches of the Stoics and Aristotle.

Subjective predictive morality and the template of responsibility both involve the use of practical reason. The question of which approach is better should probably be viewed as an empirical matter. In your experience, which approach has been of greatest help you in doing the right thing by yourself and others? The correct answer could well be different for different individuals.

In the light of similarities between subjective-predictive morality and the template of individual responsibility, it may come as a surprise to some readers that the authors have vastly different political perspectives. Josh Bachynski describes himself as “a left-leaning liberal democrat” and his book begins with a rant to the effect that he sees “ecological/economic disaster” as “disturbingly likely” because of “wasteful and self-destructive profit structures”. Douglas Den Uyl and Douglas Rasmussen are classical liberals who have proudly given one of the chapters in their book the title: “The entrepreneur as a moral hero”.

I find it impossible to believe that those vast differences in world view stem from differences in their philosophical views about ethics. There may be some differences in the value they place on individual liberty, but they don’t seem to be huge. Their different world views must stem from different perceptions about the way the economic system works and the likelihood of ecological/economic disaster. It is a matter of who is right and who is wrong about relevant aspects of the real world.

For what it is worth, I think there is a very high probability that Josh is wrong, but I acknowledge that we shouldn’t be ignoring low probability outcomes that would be disastrous for humanity. Unfortunately, as I observed in my comments on Nassim Taleb’s book, Skin in the Game, when it comes to consideration of potential Black Swan events that threaten the survival of humanity, the political systems we have inherited do not ensure that political leaders have enough skin in the game for their minds to focus appropriately. Political leaders tend to focus on their survival at the next election rather than on the survival of humanity. It is up to citizens who are concerned about potential Black Swan disasters to initiate appropriate action themselves.

Do you acknowledge a personal responsiblity to seek mutual benefit?

In The Community of Advantage, which I reviewed in my last post, Robert Sugden observes that when individuals participate in market transactions it is possible for them to be motivated by mutual benefit, rather than personal benefit or even by the potential to use proceeds for altruistic purposes. They may see virtue in voluntary transactions that enable people to get what they want by benefiting others.

Sugden points out that being motivated by mutual benefit is consistent with Adam Smith’s famous observation that we do not rely on the benevolence of shopkeepers to provide us with the goods we need. The shop keepers don’t sacrifice their own interests to provide us with goods, but they may act with the intention of playing their part in mutually beneficial practices.

Sugden suggests that adoption of the principle of mutual benefit has implications for personal responsibility:

“According to that principle, each person should behave in such a way that other people’s opportunities to realize mutual benefit are sustained. But beyond that, no one is accountable to anyone else for his preferences, intentions, or decisions. Individuals relate to one another, not as one another’s benefactors, guardians, or moral judges, but as potential partners in the achievement of their common interests".

Individuals decide how to use the opportunities that are available to them, and accept sole responsibility for the consequences.

Sugden’s discussion of ethics includes responses to the virtue-ethical critique of the market of philosophers, such as Elizabeth Anderson and Michael Sandel, who argue for collective action by citizens to impose limits on the scope of markets - on the grounds that motivations of market participants are inherently non-virtuous and therefore liable to corrupt social interactions.

However, some virtue ethicists have adopted a much more market-friendly approach. I have in mind, particularly, the template of responsibility proposed by Douglas Den Uyl and Douglas Rasmussen in The Perfectionist Turn.

Den Uyl and Rasmussen suggest that “the fact that one must make a life for oneself is an existential condition”. To be a person is to have self-responsibility. Each person is primarily responsible for her or his own flourishing. Human flourishing involves “an actualization of potentialities that are specific to the kind of living thing a human being is and that are unique to each human being as an individual”.  Actualization “is dependent on the self-directed exercise of our rational capacities”. Flourishing amounts to the same thing as “the exercise of one’s own practical wisdom”.

As noted in an earlier article on this blog, an entrepreneurial analogy is used by Den Uyl and Rasmussen to describe what a flourishing life involves. Flourishing is activity rather than a passive state. It involves discovery of opportunities, and alertness to new opportunities amidst changing circumstances, rather than merely efficient use of the means at our disposal.

The authors suggest that if we accept that human flourishing is the goal of ethics, then we should learn from exemplars. People who have flourished in difficult circumstances may provide us with useful models of action. Of course, the idea that it can be helpful to personal development to identify and emulate the values that drive heroes has been around for a long time. It seems to work best for people who are sufficiently self-authoring to be able to recognise that famous people are not always good exemplars of human flourishing.

Den Uyl and Rasmussen argue that the ultimate value of the template of responsibility is integrity, which “signifies a coherent, integral whole of virtues and values, allowing for consistency between word and deed and for reliability in action”. They suggest that integrity expresses itself interpersonally in honour. Although acknowledging that honour may be “too old-fashioned a term for today’s usage”, they maintain that it does “capture the sense of what it means to greet the world with integrity”.

An alternative term, that captures some of that meaning, is trustworthiness. Den Uyl and Rasmussen briefly discuss the question of why they consider opportunistic participation in untrustworthy behaviour to be inconsistent with individual flourishing. They argue that such opportunism puts “the relationship we have with ourselves as a whole in disequilibrium by eroding what we ought to be in our relations with others generally”.

I have a vague idea of what that means. We can’t flourish if our behaviour is inconsistent with our values. Peoples’ consciences are often troubled when they engage in untrustworthy behaviour. When confronted with an opportunity to benefit unfairly at the expense of another person we sometimes hear people say, “I couldn’t live with myself if I behaved in that way”. I am not sure whether those sentiments are best explained in terms of evolved moral intuitions, internalisation of norms of reciprocity during the maturation process, a combination of both, or something else. Perhaps it doesn’t matter much how such sentiments are explained; the important point is to recognize that humans generally view untrustworthy behaviour to be inconsistent with their values.

Results of the trust game suggests that in a world we live in there seems to be a widespread expectation that even people we don’t know may be somewhat trustworthy. The trust game is a once-off game played between anonymous strangers (A and B). A is given $10. She can choose to keep it all or send some to B. B receives 3 times the amount sent by A. B can choose to keep all the money she has received, or send some back to A. In the results of games reported by Robert Sugden, A players sent on average $5.16 and received back $4.66, with B players keeping $10.82.

Sugden suggests that the willingness of A players to send any money to B players can explained in terms of their expectation that B players can be trusted to play their part in producing mutual benefits.  

In real world interactions, people have greater knowledge of the trustworthiness of others. Sugden points out that the principle of mutual benefit requires trustworthiness:  

"In an economy in which there is a general tendency for people to act on the Principle of Mutual Benefit, it is in each person’s interest that other people expect him to act on that principle”.

He explains:

“In choosing whether or not to enter a trust relationship, each individual is free to judge for herself whether or not that will be to her benefit, taking account of the possibility that other participants may be untrustworthy. To the extent that some person, say Joe, can be expected to act on the Principle of Mutual Benefit, he can be seen by others, and sought out by them, as a potential partner in mutually beneficial interactions that those others are free to enter or not enter, as they choose. Thus, Joe’s being seen in this way allows him to access opportunities for benefit that would be closed off if his potential partners expected him always to act on self-interest."

That reasoning might suggest to some readers that it is more important to establish a reputation for trustworthiness than to have an intention to be trustworthy. A lot of commercial advertising seems to make that presumption. Fortunately, there is some evidence that individuals’ dispositions toward trustworthiness are translucent. When people have face-to face interactions with others they are quite successful in predicting who will cooperate and who will defect. On that basis, Sugden suggests that having a disposition to act on the principle of mutual benefit makes it more likely that other people will expect you to act in this way.

Summing up, accepting responsibility for making something of one’s own life is an integral part of what it means to be a human, and seeking mutual benefit in interactions with others follows naturally from that. Integrity in our behaviour toward others is of central importance to flourishing because we cannot flourish if we don’t live according to our values, and because we cannot flourish unless other people trust us sufficiently to seek mutually beneficial interactions with us.