Crawl Across the Ocean

Tuesday, February 02, 2010

38. Commercial Syndrome Revisited

Note: This post is the thirty-eighth in a series. Click here for the full listing of the series.

This post is a little different from the ones that have come before. Rather than describing a particular concept or book, this post returns to the original purpose of the series - probing into the nature of the two ethical 'syndromes' identified by Jane Jacobs in her book 'Systems of Survival'

This post looks in more detail at the commercial syndrome, trying to apply some of what we have covered in the previous 37 posts in the series. My thoughts on this are still pretty jumbled and that's likely to be reflected in this post, but nevertheless, here goes.


As a starting point, I've taken the list of ethics in the commercial syndrome, per Jacobs, and grouped them as follows:

Group 1

Shun force
Come to voluntary agreements
Respect contracts
Be honest

Group 2

Be optimistic
Be thrifty
Be open to inventiveness and novelty
Use initiative and enterprise
Invest for productive purposes
Be efficient
Collaborate easily with strangers and aliens
Be industrious
Dissent for the sake of the task

Group 3

Promote comfort and convenience

The commercial syndrome describes the economy of trade or exchange, and the first group are the ethics that serve to ensure that any trades that take place are beneficial to both sides (i.e. win-win / pareto-efficient).

They correspond to the constantly repeated concern about 'force and fraud' that I've encountered in book after book. For example, these are the values that David Gauthier wrestled with while trying to figure out which ethical values might be needed in perfectly competitive market. Basically, they are mechanisms to ensure that trade doesn't result in any negative 'internalities.' (if externalities are an effect of a transaction on someone not party to the transaction, then an effect on someone who is part of the transaction must be an internality)

Where these first 4 ethics are respected, people will develop trust that will allow them to greatly increase the number of transactions they participate in, by reducing transaction costs. Think back to the ridiculous transaction cost of the trade between Mal and Patience that I described here.

Note that these ethics require the setting aside of short term self-interest, although it remains an area of controversy whether the short term self-interest is set aside in return for a greater long run self-interest (i.e. enlightened self-interest), or if it is set aside out of concern for the other party to the trade or for the benefit of society.

We can think of the first block as representing the 'moral conditions of economic efficiency' to use Schultz's phrase. Without these moral values, trade will fail to achieve efficient outcomes. Although they may not be necessary in a perfectly competitive market, in almost any at-all realistic conception of a market, they are necessary. For example, if all trades could be conducted without placing goods at risk of theft or seizure, then there would be no need for an ethical value abjuring the use of force. But it is difficult to exchange goods without placing them within reach of seizure by the person you are trading with or other thieves.


The second group is a set of ethics relating to maximizing the number of trades made over time. We might refer to these as the 'moral conditions of economic maximization'

Thrift privileges savings over consumption and provides the means for productive investment. Initiative and enterprise as well as Inventiveness and novelty create opportunities for productive investment. Productive investment is only productive if it generates sufficient opportunities for profitable exchange. Efficiency and Industriousness serve the maximization of opportunities of exchange for a given investment. Collaboration with strangers and aliens allows for the greatest possible range of trading partners. Dissent for the sake of the task privileges maximization of trade opportunities over obedience. Optimism encourages people to take the risk of innovation and investment. etc.

It seems reasonable that these two blocks of ethics should be linked in a syndrome since if the trades follow the first block of ethics so that they are beneficial on net, why wouldn't you want to make as many as possible?

But this is exactly the question which an economist might raise: why would you need ethics in order to maximize trade? – why wouldn't people *want* to make as many beneficial win-win trades as possible? Aren't people just self-interested maximizers out to make as big a pile of money as possible? Taking Gauthier's view of ethics as an impartial restraint on behaviour, to the extent that 'natural' human behaviour corresponds with the behaviour needed to maximize trade, then no ethics would be necessary.

However, as we'll see as we go through the list of ethics in this group, there are a few disconnects between human nature and 'homo economicus'.

If we think back to Weber's example showing how capitalist enterprise might disrupt a stable market, we see that the drive to compete and to innovate and to use initiative and enterprise generally comes from putting self-interest ahead of the group interest, and therefore runs contrary to much ethical teaching.

When a company cuts its prices, or improves its products, or invents new ones these actions are not beneficial to everyone, they have a harmful effect on the other companies in their industry. In fact, cutting prices can be harmful to the company itself when its competitors follow suit, and a cozy profitable cartel degenerates into a cut-throat competitive market. In the more extreme case, new inventions often cause old industries to disappear entirely in the process known as 'Creative Destruction'.

As I discussed earlier, in most areas of human activity, cooperation is considered a good thing and the motto is 'United we stand, divided we fall.' But the ethics of 'compete' and 'innovate' and 'show initiative and enterprise' all reflect the commercial world where cooperation is considered 'collusion' and the motto is 'United we stand, then we go to jail for anti-trust violations.'

Moving on, if you think back to the article by Steven Pinker that I linked to, he listed 5 areas where researchers had identified fundamental human areas of morality. One of these was community, so you can see how an ethic of 'Collaboration with strangers and aliens' might be required to overcome this element of human nature.

Another area mentioned by Pinker was authority. So 'Dissent for the sake of the task' is required as an ethic to overcome the natural respect for authority we have.

Note that something that both 'Collaboration with strangers' and 'Dissent for the sake of the task' have in common with 'Compete' and 'Innovate' and 'Show Initiative' is that they all tend to undermine any attempt at monopoly or monopoly-like behaviour by a group of people (i.e. cooperation/collusion). This is most obvious in the case of compete, but note how if a community was attempting to successfully boycott another community or group, this would require near or total unanimity. If all the movie theaters refuse to allow black people to buy a ticket then they all remain even. But this mass refusal creates a possible profit for any theater willing to break the ban. An ethic of 'collaborating easily with strangers and aliens' will serve to undermine any attempt at monopoly or restraint of trade along these lines.

Similarly, the creation of new financial institutions not regulated as banks allowed people to get around the monopolistic behaviour of the banks who had historically presented a united front in refusing to lend large sums of money to subprime borrowers for the purpose of buying houses, even though any one of them could have made large profits (in the short term at least) by making such loans.

The need for an ethic to support 'Industriousness' seems obvious enough. People are 'lazy' (i.e. less industrious than is optimal for the production of as many trade-able goods as possible) by nature, so any ethic that makes people work longer or harder would support increased trade.

Along with 'Industriousness', 'Efficiency' must counter natural laziness, and they both are only positive ethics in an environment in which no limit on growth is needed or in one where some other force is imposing a limit on growth. What I mean is that, when it comes to an activity which is primarily about taking (as opposed to trading) - think fishing or logging - a combination of industriousness and efficiency will leave you with barren hillsides and lifeless seas. For most of human existence, we got much of our sustenance by taking from nature, so industriousness and efficiency were potentially dangerous values. But for areas of trade where limits on growth are not needed in the same way (e.g. computer hardware development) industriousness and efficiency can be a formidable force.

'Thrift' and 'Investing for productive purposes' both must counter the natural bias towards short term thinking that people have. Thrift means postponing consumption, as does investing for productive purposes. What is the ratio of people who struggle with procrastination vs. people who struggle because they are always getting hard things over with quickly? This ties in with the concept of hyperbolic discounting, discussed earlier.

Optimism runs counter to what seems a natural human tendency toward fatalism and risk aversion. Many aspects of human life (particularly in earlier days) are non-linear in the sense that getting twice your daily intake of food is merely a nice bonus whereas getting half your daily intake of food means death. This leads to a sensible tendency towards risk aversion in many situations. However, risk aversion works against the spirit of innovation and risk taking that is central to capitalist development, so optimism and openness to inventiveness and novelty are needed as ethical values to help overcome this.


Note that while competition is a spur to the second block of ethics (if you don't innovate, the competition will, if you won't sell to Myanmar, your competition will), it has a more mixed relationship with the first block of ethics. Competition helps to ensure that trades are truly voluntary in the sense that if a company is behaving dishonestly or not respecting contracts, you can punish them by moving to their competitor, whereas, if the company has a monopoly, your options are limited. But, on the other hand, companies can be driven to dishonest behaviour, to not respecting contracts, to the use of force (against unions, for example) by competitive pressures. Another way of looking at the first block of ethics is to see it as a set of restrictions on the domain of competition.

In a simple exchange, self-interest, group interest and social interest are in alignment (if the first group of ethics is adhered to), but in a capitalist market, there is a conflict between self-interest and group interest and the second group of ethics is the ethics for promoting the interest of the self at the expense of the group. The project of Adam Smith and many that came after was to demonstrate that despite this conflict with the group interest, there is nonetheless a benefit to the social interest that justifies this 'selfish' behaviour. And that although cooperation is helpful in most areas of human endeavour, cooperation (collusion) between market competitors carries a social cost.

I think this distinction is why the force of the first group of ethics is much stronger than the force of the second group. The moral condemnation of a country that invades another to seize it's oilfields is stronger than the moral condemnation of a group of oil producing countries that work together (i.e. collude) to keep the price of oil high.

So on the one hand, the commercial syndrome is simple. (Ethical) Rules to make sure trades are beneficial, and rules to ensure you make as many trades as possible. But
notice how ethically complex the commercial syndrome is at the same time. On the one hand, you have a block of (economic) efficiency ethics whose purpose is to prevent you from pursuing your short term self interest in ways that are harmful to society (force and fraud). On the other hand, you have a block of ethics whose purpose is to encourage you to pursue your short term self-interest, in ways that may be harmful to yourself (in the longer term) and are certainly harmful to your competitors, but which yield a net benefit to society. The common element, as stated by David Hume, is what is useful (beneficial) to society as a whole.


Finally, we have 'Promote comfort and convenience.' Reading about 'industriousness' and 'thrift' and 'innovation' and 'efficiency', you might start to wonder, what is the point of all this. Why accumulate money if you never plan to put it to any good use other than making more money? As modest as it sounds, 'Promoting comfort and convenience' is the goal of the commercial syndrome.

Weber alluded to this in recognizing that a modest, yet comfortable home was one of the things that even the ascetic Protestant groups he described recognized as being a reward for keeping the capitalist faith of thrift and so on. Any fantasy novel reader will recognize that while a medieval castle in invariably grand but damp and drafty, the home of a merchant is almost invariably less opulent but comfortable and cozy (excluding evil merchants, of course). The question is why?

I think the answer lies in the distinction between positional goods and non-positional goods. As discussed earlier, the pursuit of positional goods is a zero sum game since any gain is offset by a negative externality to those who did not gain. The whole goal of the commercial syndrome is to play a non zero-sum game. But it only works when the profits generated by the system are used to support non-positional (non status related) human goals.

It does us no good to generate massive wealth if we spend that wealth building houses larger than our neighbour's, that we then leave half empty because we don't need all that space. It does us no good if we spend half our lives trying to get an academic degree with more letters than the next guy so we can beat them out for a job we only needed a year or two of post secondary education to do competently.

But if instead that money goes towards central heating, to improved medical care, to cars that have airbags, to high speed rail lines and so on, then we are making progress with our wealth in making life more comfortable and convenient for ourselves.


One thing worth keeping in mind is that the list of commercial ethics was constructed to contain only those elements that differ from the guardian syndrome, so to some extent what we see here is an echo of the ethical requirements of guardian work. i.e. If industriousness was also helpful in guardian work, then it wouldn't be on the list, so the presence of industriousness reflects as much the lack of need for industriousness in guardian work as it does the need for it in commercial work.

This means that in order to better understand the commercial syndrome, we will need to go into more detail on the guardian syndrome (and vice-versa) and then we will need to consider the two syndromes together as an interlinked system.

One problem with this post is that the analysis is largely static. But the ethical syndromes can only, in my opinion, be truly understood as dynamic systems where some of the important effects of the ethics can only be seen as time passes. For example, market competition creates a process of 'natural selection.' For another example, force and fraud produce two conflicting effects: the benefits to the perpetrators giving them greater size and influence (bad money drives out good) and the reaction from other participants (shunning of fraudsters, punishment from guardians, emigration from a corrupt area, etc.)

To truly understand the syndromes will require a fully functioning dynamic model of both syndromes and their interaction to show how they can develop and be stable (or not) over time. Some of this work is already underway, and I plan to cover some of it in future posts, but for the next few posts, I'll likely shift focus a little bit from what has mainly been static analysis of the commercial syndrome to a static analysis of the guardian syndrome. One step at a time.

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