Monday, June 23, 2008

Self Interest is Other-Centred in Bargaining

I was sceptical about the title of a long post in ODE (‘the online community for intelligent optimists’) (HERE) this morning ( 23 June):

The gospel according to Adam Smith
Is doing good compatible with making money? It is if you practise spiritual capitalism.”
by Carleen Hawn (a business journalist based in San Francisco):

Spiritual capitalism doesn’t mean prayer sessions on the shop floor and guided meditations in the boardroom. At least it doesn’t have to. What it does mean is the success of an enterprise is measured by values like “integrity” and “commitment” as much as by targets like “efficiency” and “profitability.” It’s based on the recognition that every businessperson—whether you’re the CEO of a major multinational or the head of your own small firm—is in the service industry, and the services rendered must benefit not just yourself and your shareholders, but the planet and other people as well. The first commandment of the growing spiritual-capitalism movement is: Taking care of business means taking care of others.
The spiritual father of spiritual capitalism is not Mahatma Gandhi or the Dalai Lama. It’s Adam Smith. After all, there’s a reason why his most famous work is called The Wealth of Nations and not The Wealth of Individuals. Smith, the 18th-century philosopher, argued that the free market—in which “every man, so long as he does not violate the laws of justice, is left perfectly free to pursue his own interest his own way, and to bring both his industry and capital into competition with any other man”—is the best way to build wealth. He also argued that the benefits of the free market should accrue not just to individuals but to society as a whole.”


Business and the Buddha author Lloyd Field argues that the traditional profit-for-profit’s-sake model of doing business isn’t just flawed but “based on greed, hatred and delusion.” Writes Field, “I do not believe this is what Adam Smith intended. The societal ills that result from this … stand in stark contrast to [Smith’s] goals.”

Comment
The article which follows (HERE) makes its case for ‘spiritual capitalism’ with a series of cases of business leaders who transformed the way they do business for associated targets in addition to the making of profits, mostly in people skills, people understanding, green issues and listening to what customers say.

The main cases are in finance businesses (Allianz, for expale) where they deal with people who have problems, or concerns of some kind. But there is also a case about a café business.

For Adam Smith, the ‘greed is good’ view of life (summarized in the 20th-century by Geco of ‘Wall Street’ and in the 18th century by Bernard Mandeville in the Fable of the Bees) are anathema to his philosophy and his political economy. This is not my conclusion drawn from a long philosophical discussion based on tenuous interpretations of obscure footnotes. It is a central concept in Wealth Of Nations and Moral Sentiments.

Take the famous quotation of the nature of the transactions you undertake for your dinner:

It is the necessary, though very slow and gradual, consequence of a certain propensity in human nature which has in view no such extensive utility; the propensity to truck, barter, and exchange one thing for another.

Whether this propensity be one of those original principles in human nature, of which no further account can be given; or whether, as seems more probable, it be the necessary consequence of the faculties of reason and speech, it belongs not to our present subject to enquire. It is common to all men, and to be found in no other race of animals, which seem to know neither this nor any other species of contracts. Two greyhounds, in running down the same hare, have sometimes the appearance of acting in some sort of concert. Each turns her towards his companion, or endeavours to intercept her when his companion turns her towards himself. This, however, is not the effect of any contract, but of the accidental concurrence of their passions in the same object at that particular time. Nobody ever saw a dog make a fair and deliberate exchange of one bone for another with another dog.*42 Nobody ever saw one animal by its gestures and natural cries signify to another, this is mine, that yours; I am willing to give this for that. When an animal wants to obtain something either of a man or of another animal, it has no other means of persuasion but to gain the favour of those whose service it requires. A puppy fawns upon its dam, and a spaniel endeavours by a thousand attractions to engage the attention of its master who is at dinner, when it wants to be fed by him. Man sometimes uses the same arts with his brethren, and when he has no other means of engaging them to act according to his inclinations, endeavours by every servile and fawning attention to obtain their good will. He has not time, however, to do this upon every occasion. In civilized society he stands at all times in need of the cooperation and assistance of great multitudes, while his whole life is scarce sufficient to gain the friendship of a few persons. In almost every other race of animals each individual, when it is grown up to maturity, is entirely*43 independent, and in its natural state has occasion for the assistance of no other living creature. But man has almost constant occasion for the help of his brethren, and it is in vain for him to expect it from their benevolence only. He will be more likely to prevail if he can interest their self-love in his favour, and show them that it is for their own advantage to do for him what he requires of them. Whoever offers to another a bargain of any kind, proposes to do this. Give me that which I want, and you shall have this which you want, is the meaning of every such offer; and it is in this manner that we obtain from one another the far greater part of those good offices which we stand in need of. It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages
.” (WN I.ii.2: 25-7)

Most read this passage as if it is a description of being self-interested in self. It is quite the opposite. Adam Smith makes it clear that he is reminding readers that when they want something from somebody else they have to take account of the other person’s self interest and not to take account only of their own interests:

But man has almost constant occasion for the help of his brethren, and it is in vain for him to expect it from their benevolence only. He will be more likely to prevail if he can interest their self-love in his favour, and show them that it is for their own advantage to do for him what he requires of them.”

Note the words: ‘interest their self-love in his favour, and show them that it is for their own advantage to do for him what he requires of them.’ Could it be clearer? But more – there are two people involved in every transaction: the buyer and the seller and each are enjoined to follow the same mandate: interest the other person by understanding their advantages in completing the transaction.

How can they do this? By offering them a bargain:

Whoever offers to another a bargain of any kind, proposes to do this. Give me that which I want, and you shall have this which you want, is the meaning of every such offer; and it is in this manner that we obtain from one another the far greater part of those good offices which we stand in need of.

It’s not a one-way deal: ‘give me what I want!’ That won’t motivate somebody to transact with you. That’s not a bargain; it’s a one way street. You have to offer them something too: ‘Give me that which I want, and you shall have this which you want’. The bargain is a conditional proposition: ‘If you do this for me, Then I shall do that for you’.

Mostly, people quote the last sentence without the prologue:

It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.”

Worse! They quote the sentence without reading it. Address yourself to their self love, not your own. Telling them of your ‘own necessities’ is not persuasive. You have to tell them of the ‘advantages’ of the transaction to them. Your conditional offer tells them what they will get in return: ‘you shall have this which you want’. You must be other-centred in the bargain.

In summary, Adam Smith’s moral philosophy asserts that our own self-interest is best served by serving the self interests of others. That is what bargaining means for the exchange transactions of people in commercial societies. It is the integrity of bargaining that is compromised by monopoly businesses which eliminate or restrict competition, by coercive manipulation of supplies of goods, labour and capital, and political, religious, or ideological interventions in the freedoms of law abiding people to transact with those who are prepared to transact with them without harming others.

This is a long way from the ‘greed is good’ school of business. Smith did not call this ‘spiritual capitalism’ – he never knew the word capitalism, as it was first used in English in 1854, long after he had died in 1790 – nor was it a ‘gospel’ or anything ‘spiritual'. It was a plain description of how transactions were managed in a commercial society, free of the policies of mercantile political economy, the then dominant form of interference in the economy he knew well.

Carleen Hawn reports, via MindBodyGreen (‘share and discover better, healthier, and green living’) (HERE)on a central pillar of Adam Smith’s political economy written 232 years ago in Wealth Of Nations. That is a whole lot better than how most of the economics profession report of the goals of business, consumers, and governments of today.

0 Comments:

Post a comment

<< Home