Do you think of marketplace behavior as neutral, negative, or moral? Paul Zak and other researchers argue that market behavior on the whole is moral behavior that both benefits from and contributes to social connectedness. In fact, Zak argues that Confucius, Aristotle, and others are wrong to look down their noses at trade. Surprised? Read on.
I recently heard a lecture by David Halpern, policy advisor to 10 Downing Street and author of The Hidden Wealth of Nations. What caught my imagination was Halpern’s description of economies of regard, informal care-based exchanges based on reciprocity rather than altruism. He illustrated the idea with care-based exchanges in Japan, where people can earn care credits that they can only spend to acquire similar levels of care for their loved ones. For example, assume you are living in Tokyo and your mother is living three hours away, even by a fast train. She has a fall and temporarily needs care that you would really like to be able to give her. But unfortunately you cannot take time off from work to travel to her small town.So you volunteer to help out someone else’s mother who lives close to your home in Tokyo. You go to the grocery store for her, take her to the doctor, and install hand rails to prevent future falls. You help her with her physical therapy, and you drop by several times a week to see what she needs. It takes time, but it doesn’t require long hours of travel. You send the care credits to your mother, who uses them for the care she needs, which she gets from someone who, like you, is earning care credits for a beloved family member.
You could just hire a home-care nurse to take care of your mother, paying for the service with money. But somehow, your mother feels differently that you earn her care with your time. When the care-taker arrives, it reminds her that you do know how to care for people, that she did teach you that people are important. She understands that the travel distance makes it hard for you to be with her, but you aren’t ignoring your responsibility.
My godmother lived 15 miles away from my home, while my mother lives nearly 3000 miles away. Several times over the last few years, I moved in with my godmother to care for her after an injury. It only occurred to me when I listened to David Halpern that my experience caring for my godmother made it possible for me to call on friends in my mother’s town when she needed help. It made me aware that friends may actually welcome the opportunity to help my mother and find it rewarding. Without that experience, I’d be embarrassed to ask because I’d feel that I was imposing on them. So giving thus makes it easier to receive.
Trust and Economic Performance
Citing research by Beugelsdijk and colleagues on the impact of social trust on economic performance, David Halpern made the statement that social capital and trust have a greater impact on economic growth than human capital and education. Halpern described policies in different parts of the world that appear to lead to greater social connections, including Patient Hotels in place of hospitals in Sweden and the Yellow Ribbon program in Singapore for welcoming people back into the community after prison, which has greatly reduced recidivism. From what I can see, there is considerable debate about the robustness of the relationship between trust and economic growth. What’s interesting are major economic implications, such as the statement made by Paul Zak and Stephen Knack, “If less than 30% of people in a country think their compatriots are trustworthy, investment will be so low that positive income growth will not occur.”
Thinking both about the reciprocity represented by care credits in Japan and the connection between trust and economic growth, I went searching for relevant research. I was happy to find work by Paul Zak, professor of Neuroeconomics, Economics, and Neurology at Claremont Graduate University. Here are just a few of the points I’ve picked up from his papers and online videos.
- People are social creatures exquisitely prepared for exchange. In particular, an uncoerced market exchange requires gains for both parties. That stopped me for a moment, but it makes sense. When I do my grocery shopping, I “win” food for my table, which I need more than the money I give up. The grocery store “wins” revenue and profit which it needs more than food that will otherwise spoil on the shelf. If I don’t feel I am winning enough for my money, I can shop at a different store.
One of the signs of a successful partnership, in my view, is sufficient trust in my partner that I worry more about doing my share than I do about what the other contributes.
- We have three mechanisms in the human brain that appear to provide a moral compass: mirror neurons that help us experience what others around us experience, theory of mind which enables us to see things from another’s point of view, and affective representations that allow us to internalize the emotions of others. Moral behavior is driven more by emotions than by reasoning.
- The release of oxytocin appears to facilitate reciprocity. In experiments in his laboratory, Zak has found oxytocin release to be associated with a temporary attachment to a stranger who has demonstrated trust, which tends to lead to a desire to reciprocate. He claims that oxytocin release motivates virtuous behaviors of every sort, making people more generous, more compassionate, and more trustworthy.
We thus have a biology that supports reciprocity. It feels right to cooperate with those who cooperate with us.
- What about the cheaters that we hear so much about on the news? Zak comments that cheaters are much more memorable and newsworthy than the day-to-day win-win exchanges that go on all over the world. Or as Michael Shermer puts it, there are 10,000 small acts of kindness for every one act of random violence. So cheaters are represented in the news far out of proportion to their actual incidence in society. But cheating does occur. One reason may be that there are people who do not have a robust oxytocin response, perhaps because of genetics, because of lack of nurturing in childhood, or because of excessive stress. They may not be motivated to behave in trusting or trustworthy ways. But just as we have a biology for reciprocity, we also have a biology for punishment.
- For most of the people most of the time, the desire to reciprocate joins with the fear of punishment – such as being shunned by our peers – to motivate moral behavior.
“Having an appropriate balance between distrust and trust, and a mechanism that processes these quickly, permitted the formation of civilizations, a further division of labor and the creation of surplus.” Paul Zak
- Indirect reciprocity involves doing things that are not direct exchanges. The Japanese care credits are a form of indirect reciprocity, as is the concept of paying it forward. This is an idea that goes back to our hunter gatherer days, when people found the best storage for surplus food to be in neighbor’s stomachs. Zak points out that indirect reciprocity requires that an animal has a long life and sufficient cognitive resources to remember social accounts for an extended period.
Zak claims that market exchanges give us an opportunity to practice moral behaviors, such as being trustworthy, and participating in win-win exchanges. As a result, markets are not only moral in and of themselves, but they also contribute to maintenance of moral behavior in other realms.
Food for thought!
Beugelsdijk, S., de Groot, H. L. F., & van Schaika, A.B.T.M. (2001). Trust and Economic Growth. Tinbergen Institute Working Paper No. 2002-049/3
Halpern, D. (2010). The Hidden Wealth of Nations. Polity.
Halpern, D. (2010). RSA Video about The Hidden Wealth of Nations.
Knack, S. & Keefer, P. (1997). Does Social Capital Have an Economic Payoff? A Cross-Country Investigation. The Quarterly Journal of Economics, 112 (4): 1251-1288.
Shermer, M. Description of his book, The Mind of the the Market.
Zak, P. & Knack, S. (1998). Trust and growth. Abstract..
Zak, P. (2011). Moral Markets: Paul Zak discusses Oxytocin, Trade, and Human Nature. Reason TV.
Zak, P. (2009). Neuroeconomist Paul J. Zak on Markets and the “Molecule of Love”. Reason TV.
Zak, P. The Science of Liberty.
Zak, P. (2011). Moral Markets. Journal of Economic Behavior and Organization, 77, 212-233.
Zak, P. (Ed.) (2008). Moral markets: the critical role of values in the economy. Princeton University Press.