Crawl Across the Ocean

Tuesday, March 24, 2009

5. No One Makes You Shop at Wal-Mart

Note: This post is the fifth in a series, Parts one, two three and four

Now who here among us, still believes in choice? Not I.
- The Arcade Fire, Ocean of Noise


This post summarizes Tom Slee's 2006 book, 'No One Makes You Shop at Wal-Mart' The title is a little misleading as the book doesn't really have anything (directly) to do with Wal-Mart.

Instead, it talks about how although right wing folks champion the idea of 'free choice,' there are many situations where free choices doesn't have the consequences you might think (the book's subtitle is 'the surprising deceptions of individual choice')

Slee labels as 'MarketThink' the idea that giving people more choices always leads to better outcomes and that the outcomes from a process of free choices always represent a fair reward to all involved.

Naturally, the first way in which people's choices might not lead to the outcomes they expect/desire is the one I described a couple of posts back, the Prisoner's Dilemma. In fact, making choices that help you but don't lead to the best outcome is pretty much the definition of the prisoner's dilemma.

Slee devotes the first 5 chapters of the book to prisoner's dilemma type situations. Chapters 1 and 2 introduce the concept of the prisoner's dilemma, much as my previous post did.

Chapter 3 provides some more examples, focussing on cases where the prisoner's dilemma leads to private gain at public expense, for example the case of littering (in everyone's interest not to bother putting their stuff in the garbage, but also in their interest not to have a park full of litter), or urban sprawl, where we have an interest both in a compact, livable city, and in a house overlooking lots of open space, but we are able to choose the latter, but can't choose the former on our own.

Chapter 4 talks about the 'arms race' type of prisoner's dilemma in which participants make alternating attempts to get ahead of the other people only to find that the other people retaliate in kind and all parties end up spending a lot of resources while not gaining any relative advantage.

Chapter 5 discusses the conditions in which people can overcome prisoner's dilemmas, noting that where groups are small, everybody knows each other and there is little turnover, people remember what you did last time and will punish you if you do not cooperate. So in a small village there is a stronger push for conformity to local standards of behaviour than there is in a city. As a group of people trying to overcome a prisoner's dilemma grows larger and has less knowledge of each other, the need for a central enforcement mechanism to ensure cooperation grows.

Chapter 6 considers that the nature of many interactions may or may not be a prisoner's dilemma depending on how the interaction is structured. And it is in interest of parties that will benefit from cooperation to remove the prisoner's dilemma element from a situation, while it is in the interest of parties that benefit from a situation remaining a prisoner's dilemma to prevent any escape from the prisoner's dilemma via cooperation (i.e. to promote competition instead, where choice automatically creates competition).

For example, in a workplace, employees pushing for higher wages are in a prisoner's dilemma because any one employee has an incentive to work for slightly less than his co-workers so that they might be fired instead of him if costs are being cut. A union is designed to enforce cooperation by removing the element of choice/competition between workers. This has the effect of levelling the bargaining environment between workers and management. Naturally management has an interest in promoting the freedom of employees to choose to undercut their fellow employees or to work as scabs.

In the same manner, companies have an interest in countering any tendency towards standard corporate taxes across jurisdictions, instead promoting the freedom for any one jurisdiction to profit by undercutting other countries as they so frequently do.

Chapters 7 and 8 move to a different type of situation, one where instead of the negative externalities of the prisoner's dilemma, there are instead positive externalities. Typically, these are cases where what is important is less what you do, and more that a lot of people are doing the same thing you are. The archetypal case is that of the zebra. Even black and white stripes on a brown and green savanna is the best camouflage if that's what everyone else is wearing. Choosing a nightclub to go to is another example of this type of situation. The best club is one that a lot of other people like.

Included in this group of cases is the network externalities that the last post in this series described, where the prototypical case is the 'QWERTY' keyboard (and also the selection of VHS over Beta). What matters is not what the arrangement of the keys is, only that everyone use the same arrangement.

Slee makes the point that in cases that fit this description, the 'winners' can reap huge rewards, and although business magazines will attribute these rewards to the winners brilliance and contribution in the form of value added, much of their fortune stems simply from having their standard chosen over someone else's - something that can often be a result of luck as much as skill.

Chapters 9 covers market failure due to limited information. If one side to a potential transaction has valuable information that the other side lacks (i.e. a used car sale where the seller knows more than the buyer, or a life insurance purchase where the buyer knows more than the seller) simply allowing both sides to make a free choice of whether to make a deal or not may lead to problems because it is hard for the two sides to agree on a fair price when one doesn't know the value of what they are buying/selling. In insurance, this is dealt with by removing the element of choice on the purchaser side (e.g. through universal plans, or group plans through employers). Once the insurer knows they can set a price without fear that healthy people (or people who are low risk, with respect to the insurance being sold) will reject their price while people who are sick (high risk) will accept their price, then the market can function reasonably well - but it rests on removing freedom of choice from those signing up for insurance.

Chapter 10 makes the point that a voluntary transaction is only voluntary to the extent that both parties have an alternative that is just as good and just as easy to obtain. Buying apples in a farmer's market is a case where if you don't like one farmer's price, the next farmer over may do just as well. At the other extreme, Slee gives the example of a person trapped in a well in a remote area bargaining with a passerby. Given that the alternative to getting help may be death, the person in the well may 'voluntarily' agree to just about anything.

Slee notes the continuance between having good alternatives and making a voluntary decision and having bad alternatives (high transaction costs, lack of a good alternative, etc.) and making a quasi voluntary, quasi involuntary decision. As we move towards the involuntary side of the spectrum, relying on both sides having freedom to choose as the mechanism that will ensure a good outcome instead of employing some stronger moral imperative will lead to exploitation rather than exchange.

Chapter 11 is a conclusion that summarizes the following 7 lessons that the book teaches:

1) Individual Choice Does Not Give Us What We Want
2) Freedom of choice promotes the private and degrades the public
3) Freedom of choices produces inequality based not on merit but on luck
4) Freedom of choice does not preclude the exercise of power
5) Freedom of choice does not preclude exploitation
6) Predictability drives out quality
7) Social Exclusion is Self Sustaining

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Some other notes:

1) On page 45 Slee makes the important note that, "wise people often take steps to eliminate choices they know will lead to bad outcomes" and further notes that there are many cases where you might desire all to be bound in a certain way, but not be willing to be bound yourself unless everyone else is. For example, I might prefer not to have a Wal-Mart in my town knowing that it will eventually drive out of business all the local retailers leading to a dead downtown area. But once a Wal-Mart is in my area, and the consequences are set regardless of what I do personally, that it is in my interest to save money shopping at Wal-Mart, notwithstanding my earlier objections. Even while shopping there, I might prefer that the store be shut down, and this is not inconsistent.

2) On page 201, Slee makes the bizarre claim that his is not a book about 'ethics' - the whole thing is about ethics!

3) This ties in with the final conclusion of the book which reads,

"The ideas of MarketThink clearly work within a limited domain. ...To sell this picture of choice as "the way the whole world works," as MarketThink does, is overreaching on an epic scale ... It is time to place collective action back on the table. ... Most of all, it is time to embrace complexity. This book is about a worldview; it does not pretend (as MarketThink does) that a single solution exists to solve all our problems. Jane Jacobs got it right...."


Now if you're me, you're thinking that this last sentence ends by saying Jacobs got it right in her book (Systems of Survival) explaining that we need both the commercial (MarketThink) set of ethics AND the guardian (collective action) set of ethics to make sense of the world. But no. It ends with a quote from Jacobs (from 'The Death and Life of Great American Cities" about how cities are complex and we need to care about the details and complexities of how they work). So a disappointing conclusion, but a worthwhile book all the same.

4) In researching this post, I realized that Tom Slee has a blog, entitled 'Whimsley' (many of the examples in the book are set in the fictional town of Whimsley.)

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4 Comments:

  • Very interesting, Declan.

    I just finished Nudge (the Sustein/Thaler book advocating a doctrine of "libertarian paternalism"), which proposes solutions to many of the problems Slee describes, without limiting or eliminating freedom of choice. It seems like a happy compromise to me.

    By OpenID prairiewrangler, at 9:20 AM  

  • I haven't read Nudge, but from what I've heard it sounds like it is mainly looking at situations where people make 'irrational' decisions and could benefit from what Joseph Heath calls 'scaffolding' to support their decision making process (I'd include a link to Heath's essay on the topic but his website seems down at the moment - I might get to it later in the series).

    This is a bit different from what Slee is mostly talking about which is situations where the people are all acting 'rationally' but nonetheless the outcomes are not optimal.

    By Blogger Declan, at 10:03 PM  

  • Came across this while auto-googling today. Accurate and nicely written summary - thanks a lot.

    By Blogger tom s., at 4:48 PM  

  • Thanks Tom - I really wish more people had read and understood your book.

    By Blogger Declan, at 10:43 PM  

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