Crawl Across the Ocean

Tuesday, February 22, 2011

83. Loyalty

Note: This post is the eighty-third in a series about government and commercial ethics. Click here for the full listing of the series. The first post in the series has more detail on the book 'Systems of Survival' by Jane Jacobs which inspired this series.

Back at the start of the year, I mentioned that as part of this ongoing series,
"I suspect that it will become necessary to try and formalize some of the precepts that make up the syndromes. For example, how can we define what it it means to 'Be Exclusive'? Based on what I've encountered in the series so far, it seems like game theory may well be the best medium in which to try and more precisely pin down the meaning of some of these precepts, although I'm certainly far from optimistic about how successful my attempt will be."

This week I want to look at a guardian precept, 'loyalty'.

What does it mean to be loyal? unhelpfully describes it as, 'the state or quality of being loyal' and goes on to suggest, 'faithful adherence to a sovereign, government, leader, cause, etc.'

Wikipedia is a little more helpful. On the topic of loyalty, it refers us back to 'The Philosophy of Loyalty' written by Josiah Royce in 1908. Per Royce, per Wikipedia,
"loyalty is "the willing and practical and thoroughgoing devotion of a person to a cause". The cause has to be an objective one. It cannot be one's personal self. It is something external to oneself that one looks outward to the world to find, and that cannot be found within. It concerns not one's own person, but other people.1"

Another interesting Wikipedia reference comes from Stephen Nathanson, professor of Philosophy at Northeastern University. Says Wikpedia,
"Nathanson observes that loyalty is often directly equated to patriotism. He states, that this is, however, not actually the case, arguing that whilst patriots exhibit loyalty, it is not conversely the case that all loyal persons are patriots. He provides the example of a mercenary soldier, who exhibits loyalty to the people/country that pays him. Nathanson points to the difference in motivations between a loyal mercenary and a patriot. A mercenary may well be motivated by a sense of professionalism, or a belief in the sanctity of contracts. A patriot, in contrast, may be motivated by affection, concern, identification, and a willingness to sacrifice"

Note that in both cases, the mercenary and the soldier, Nathanson associates loyalty with the pursuit of something other than self-interest.

Say somebody lived a life in which their own self-interest always lined up with the interest of their Prime Minister. Over their life all of their decisions showed loyalty to the Prime Minister's interest. Can we say that this person was loyal? I think most people would say that it is uncertain because that person's loyalty was never tested.

What it does mean to test someone's loyalty? I'd argue that it means to create a situation where a person's self-interest (or loyalty to something/someone else) conflicts with the person/cause that they are loyal to. Failing this test of loyalty means that the person has put their own interest (or someone else's) ahead of the loyalty to the person doing the test.

The Wikipedia entry mentions perhaps the most famous loyalty test on record, God's command to Abraham to sacrifice his son Isaac to show his loyalty to God. In order to show that Abraham is loyal to God above all else, only a test involving the thing he values most in the world (his son) will suffice.

It seems that loyalty has two components:

1) The willingness not to put self-interest ahead of the interest to which one is loyal
2) The willingness not to put loyalty to something/someone else ahead of the interest to which one is loyal.

So loyalty has to involve both exclusiveness and altruism.

In game theory terms2, we can imagine loyalty as being defined as the difference between two scenarios:

In the first, person A, has a choice between two outcomes. Despite recognizing that outcome 2 is better for Person B, Person A prefers outcome 1.

e.g. Bob is the sister of Queen Alice. Bob chooses to sell military secrets to a hostile government even though he knows this will cause trouble for Alice.

In the second scenario, the loyalty Bob feels to Alice changes his decision such that he prefers not selling the military secrets, even though he knows he could personally come out ahead through the sale.

This isn't quite precise, because there are other ethics (such as sympathy) that might achieve the same effect. The difference between sympathy and loyalty is the exclusive nature of loyalty. While being sympathetic to everyone is regarded as one of the highest ideals in many ethical systems, being loyal to everyone is an oxymoron. This distinction is impossible to reflect in a two person scenario, but we could imagine a multi-person scenario in which Bob can choose just one person to be loyal to but might well be sympathetic towards everyone.

1 Interestingly, Wikipedia also quotes Royce making a very Jane Jacobs-esque statement on Commercial ethics, "[I]n the commercial world, honesty in business is a service, not merely and not mainly to the others who are parties to the single transaction in which at any one time this faithfulness is shown. The single act of business fidelity is an act of confidence of man in man upon which the whole fabric of business rests."

2This isn't a game theory situation per se, since Bob is just choosing without consideration for anyone else's choices, but what I mean is using the same sort of payout matrix that is common in game theory to show the decision making process for Bob.

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Monday, February 21, 2011

The Corporate Media

In chart form, your corporate media at work in the 2008 Canadian Federal election:

Here's how the people voted (click to enlarge):

And here's how the media voted:

Over 60% of Canadians voted for the Liberals, NDP, Bloc or Greens and yet, in the entire country, there were only 2 daily newspapers (with any sort of circulation), The Toronto Star, and Le Devoir, that were in alignment with this overwhelming majority of Canadians voters.

I know this is obvious to anyone who pays attention, but I think putting it in chart form makes it extra clear that the media might just be a little out of touch with, and further right than, the population at large. Who could have guessed that wealthy corporate types might be more right wing than average Canadians?

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Tuesday, February 15, 2011

82. Types of Evolution

Note: This post is the eighty-second in a series about government and commercial ethics. Click here for the full listing of the series. The first post in the series has more detail on the book 'Systems of Survival' by Jane Jacobs which inspired this series.

I'm in the middle of reading 'On the Origin of Species' by Charles Darwin. I wouldn't say it has a whole lot of relevance to this series (so far, anyway) but it does have me thinking about evolution and natural selection.

When I hear the word 'evolution,' the first sense of the word, or mechanism by which evolution can occur that comes to my mind is the one described by Darwin. There is a competitive environment in which 'success' means having more offspring that survive to have offspring of their own, and there is some sort of process of mutation that allows new variations to get tried out and to become more plentiful over time as they are 'successful' and have many offspring.

This process is most famous in the natural world, but the same phenomenon is at work in computer algorithms that generate successful automated othello playing programs, to pick just one example. The programmers create a bunch of programs to play against each other and allow the strategy of the players to mutate in various ways. Programs that win are 'reproduced' more times into the next generation of programs in an iterative process and over millions of generations of mutations and 'natural' selection, very powerful othello playing programs are generated (there's a nice summary of the process here).

As opposed to dominating by having lots of children, another way that a successful strategy can come to dominate is by growing larger. This has limits in the diminishing returns natural world, but in the world of business, where offspring are rare, it is more common for the successful company to achieve dominance by growing very large and swallowing up other companies.

Another possibility for spreading success is imitation. Even if Wal-Mart never (yet) takes over 100% of all retailing, it's innovative inventory management approach (and harsh labour methods as well, sadly) could still come to achieve 100% domination in the market if all of Wal-Mart's competitors copy their strategies.

One area of intense controversy in the academic world is the question of whether:

A) 'the selfish gene' means that people wouldn't evolve to be altruistic because their altruistic behaviour would make them less likely to pass on their genes than someone who was more selfish,


B) because groups which are cooperative will succeed against those which operate on an everyman-for-himself principle, cooperative genes might be able to succeed over time, even if cooperators faced a potential disadvantage against those who were willing to be selfish within an otherwise cooperative group.

Given that nature offers plenty of example of species both cooperative and selfish and that mankind seems well capable of both selfishness and altruism, it seems likely that the tension between these two forces has resulted in a human ability to pursue both the selfish interest and the group interest, depending on the circumstances, perhaps along the lines of the model we studied a while back from Howard Margolis.

Maybe I'll return to this debate later on in the series, but for this week, the main takeaway is that evolution can take different forms and could be consistent with both cooperative and selfish behaviour, depending on the context.

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Tuesday, February 08, 2011

81. What's So Special About Land?

Note: This post is the eighty-first in a series about government and commercial ethics. Click here for the full listing of the series. The first post in the series has more detail on the book 'Systems of Survival' by Jane Jacobs which inspired this series.

In 'Systems of Survival' Jane Jacobs describes what all the occupations that subscribe to the Guardian syndrome have in common:
"It finally struck me. They're all concerned with some aspects of territorial responsibilities. The condition is the work of protecting, acquiring, exploiting , administering or controlling territories.


Not territory in the abstract. ... Real concrete territory. I suppose we might call this the territorial syndrome. Taken as a whole, it also describes the classic heroic virtues and values."

But this raises the question, what is so special about land, that organizations dedicated to managing it have an entirely different ethical system from commercial organizations?

One thing that differentiates land from the other things we buy and sell is that, as any real estate agent will tell you, they aren't making any more land.

I touched on this earlier, back in this post about how humans were 'cowboys on a spaceship'

Given a finite commodity, all the values in the commercial syndrome which relate to maximization of production aren't particularly useful - in fact they can be counter-productive depending on what purpose they are directed to.

So if you can't make any more land, the only question becomes how to divide the land that does exist. Note that this is a zero-sum game, unlike the positive sum commercial world.

In this zero sum world, gains will come at the expense of someone else's loss and, leaving aside the possibility of mutual enemies for the moment, there is no benefit from working together with someone else, just like how, in the zero sum game of chess, there is nothing to be gained by trying to work with your opponent and little to be gained via trade.

But it's not just that land is finite, there's also the fact that, even without much industry from man being applied, land is quite valuable. At the very least, it keeps one from drowning. Most land can also be used to provide other plants and animals, and sometimes valuable minerals as well.

So with the land being so valuable, and with it being near impossible to make more, whoever holds land will likely be able to make a profit on that ownership simply by renting it out to whoever needs to use it. Economists have a term for when you can make an excess profit because others are unable to compete with you (you can only ever have one piece of land in the same place) and that term is 'rent' or 'economic rent' . Of course the fact the word used is 'rent' reflects the fact that land ownership is typically the most common way in which such an excess is earned.

But why not simply have a market for land, and have people pay whatever price they think the land is worth? The obvious problem, of course, is that someone might decide that it is cheaper to simply take the land, rather than buy it. You can't really hide land or move it somewhere, so once someone decides to take it, it's fight or flight. And as Machiavelli said, 'there is no proportion between one who is armed and one who is unarmed.' But an arms race in which everyone strives to be better armed than everyone else is unproductive because being the 'most powerful' is a relative term. This takes us back to Hobbes, who explained why we needed a single organization in charge of the land that was so powerful, nobody could contest it.

So land is finite, valuable, and can be taken by force, all of which combine to necessitate having someone to defend it.

But maybe that defence service itself could operate according to commercial principles. People could simply hire someone to protect their property. There's no need to abandon the market just because we need to buy some defensive help, right?

There are a few problems with this approach. One is that in conflict there are economies of scale, such that there is a benefit to having a larger force for hire, which means that those groups which are able to form a single united bloc will have an advantage vs. their neighbours. Another problem is that conflict is quite dangerous and history shows that forces working for money have historically performed poorly when matched up against forces that were working for some other 'higher' purpose and thus had a higher morale or willingness to die for the cause. Another problem is how can you prevent the people you hired to protect you from simply turning on you and putting themselves in as dictator over you. Finally, what do you do if someone makes the people defending you a better offer?

Another factor to consider is that network externalities mean that when constructing something that spans territory via a network design, it is efficient to only build one. For example, to build two road networks that don't connect would be highly inefficient. Similarly, most areas only have one water system, one electricity grid and so on. So organizations that span land with a network type structure tend to be monopolies. Some historians speculate that the reason Egypt was one of the first places to develop a centralized government was because constructing an irrigation system is the sort of network based monopoly that works best when organized by one central entity. Whereas competition leads to gains for society in most markets, when it comes to building territorial networks, competition just leads to inefficiency, so an organization that can control an area of a certain scale has an advantage over smaller entities.

Finally, the dynamics of conflict generally work out so that a single contiguous piece of land is more defensible than scattered territories. This is partly due to the network effects described above, and partly due to economies of scale in combat and an increased need to divide one's forces if one is defending multiple pieces of land that are not connected. Of course, this is subject to changes from technology and with the rise of the British Navy, for example, England was able to build a far flung empire of places whose only connection was that they bordered the sea. This dynamic lends itself to territories being made up of a contiguous piece of land governed by a single entity.

So, to summarize, because land is both finite and valuable, it serves as a source of (economic) rent, or profit that can be achieved without work. This unworked for profit is sought after by many, leading to violent conflict. Any particular group can maximize the rent it earns from land when it can minimize destructive conflict within the group and maximize the effectiveness of conflict with enemies in order to expand the amount of land it controls. The economies of scale in combat and the natural monopoly nature of networks lead to groups coalescing into contiguous land blocs for defensive and efficiency purposes.

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Friday, February 04, 2011

Inequality, Leverage and Crises

That's the title of an interesting paper by Michael Kumhof and Romain Ranciere for the IMF. (Full text of the paper available here)

Although the details of their actual model will require some knowledge of economics to follow, the paper contains some lengthy non-technical sections, including one showing how the 1920's run-up to the Great Depression was similar to the 2000's runup to the Great Recession and one explaining the mechanism by which their model works.

Basically, they posit a shift in bargaining power (think decline in unionization rates, offshoring of jobs, etc.) from a working class (95% of the population that earns its money from wages) to an investor class (5% of the population that owns most of the capital) and then assume that the extra revenue coming to the investor class as a result of their improved bargaining power is lent back to the workers. This allows the workers to maintain their relative share of consumption, and provides an additional source of income for the investor class.

Over time, the debt level of the working class increases and the vulnerability of the system to a debt crisis increases along with it.

The authors find that widespread defaults during a crisis will help by reducing debt levels of the workers, but because the underlying cause is left unaddressed (the lack of bargaining power for the workers), this is a weak and short-lived solution, with crises repeating regularly. The quicker, more sustainable solution is measures to restore the bargaining power of the workers so that the incentive for workers to borrow and investors to lend is removed or at least reduced.

Anyway, it's just a model, but it's one of the few that actually seems to present a plausible theory of how (certain types of) debt crises happen that seems to mostly fit the facts of what we've observed in the Great Depression and our current Great Recession.

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Tuesday, February 01, 2011

80. The Mystery of Capital

Note: This post is the eightieth in a series about government and commercial ethics. Click here for the full listing of the series. The first post in the series has more detail on the book 'Systems of Survival' by Jane Jacobs which inspired this series.

This week's post discusses the book, 'The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else' by Hernando de Soto.

Where Max Weber saw religion as a critical element in the success of a society, and Plato and Jane Jacobs saw a proper delineation of roles between the guardian and commercial sectors of society as the key, de Soto is focussed on a particular institution - property rights - as being the key to prosperity.

de Soto's argument has a few points:

1) Most of the wealth of the world's poor is in the land that they occupy
2) Red tape and a lack of proper property rights prevents them from translating the value of this land into economic opportunity in a number of ways:
-> by preventing it's use as collateral for loans
-> by not providing a fixed address to tie people into a system where people can hold them accountable for their actions (e.g. via credit bureaus, police investigations, etc.
-> by preventing land from being split or consolidated or transferred until it ends up in the hands of the best users of the land.
-> etc.

Wikipedia sums up his main argument as follows:
"The main message of de Soto's work and writings is that no nation can have a strong market economy as long as most of its people remain on the outside just looking in. "The existence of such massive exclusion generates two parallel economies, legal and extra legal. An elite minority enjoys the economic benefits of the law and globalization, while the majority of entrepreneurs are stuck in poverty, where their assets –adding up to more than US$ 10 trillion worldwide– languish as Dead capital in the shadows of the law. To survive, to protect their assets, and to do as much business as possible, the extra legals create their own rules. But because these local arrangements are full of shortcomings and are not easily enforceable, the extralegals also create their own social, political and economic problems that affect the society at large."

One of the things we've seen in the series so far is that one of the contrasts between guardian world and commercial world is that guardian world is the world of monopoly. It hadn't really occurred to me before, but after reading de Soto's book, it makes sense that it is best if each individual piece of property is a monopoly in the sense that it has a clearly recognized, undisputed owner. In some sense, that is almost part of the definition of property. For something to be property, it must have a defined owner.

One hazard of strong inequality, as documented by de Soto, is the creation of a government in which even the most basic elements such as securing land title or security are unaffordable for the poor, so that even though there is a government in place, most of the citizens no longer benefit from its existence in a meaningful way.

One interesting element of the book was the part where de Soto described the history of the process in the U.S. of creating a formal land registry system. From the struggles over squatter rights as settlers moved West to elaborate sets of rules for claims developed independently by gold rush miners and eventually recognized by the governments of the day it was a long and conflict filled process.

Another of the interesting things about the book is that even though de Soto has spent his life working with sometimes recalcitrant, often corrupt, generally ineffective governments, he still believes that the only way forward is for government to eventually succeed at creating a land registry that meets the needs of the poor people. Clearly de Soto believes that, aside from government, there is no entity that can really settle the question of ownership in an efficient manner.

While I found myself agreeing with de Soto that the poor could benefit from being brought 'in from the cold' of being outside the legal system with respect to their property, I wasn't really convinced that it was much an ultimate cause of poverty and poor development, as opposed to being one of many proximate causes.

In other words, if some countries were failing to develop an effective property rights system and others aren't, what is making the difference? Although, as documented by de Soto, the countries of the West had to develop property systems and it took them a long time to do so, it seems as though this was just one challenge out of a long list that was overcome on the road from the dark ages to the moon.

Maybe the countries of the current third world are just going through the same process and de Soto is just trying to nudge it a long a little faster, in which case, there's certainly nothing wrong with that but it doesn't tell us too much that is relevant to our investigation into ethics. Which is OK, I guess some things are just technical issues, not really related to ethical concerns directly.

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