Friday, September 25, 2009

Smithian Competition Confirmed

Laura Fitzpatrick asks: “Are Humans Actually Selfish?” in

In his new book The Age of Empathy: Nature's Lessons for a Kinder Society, primatologist Frans de Waal uses a variety of studies on empathy in animals to debunk the idea that humans are competitive to the core.

Given all the science that tells us about empathy in animals and in ourselves, why do you think the idea persists that at bottom we're competitive backstabbers?

It was established at the beginning of the Industrial Revolution, when probably it was useful to have a picture of humans as competitive and to base the capitalist system on that image. And in doing so, a lot of political ideologues and economists started to forget that we are also a highly social species. The founder of economics, Adam Smith — to his credit — did realize that if you build a system completely on competitive principles it would not work very well.

What happened a year ago on Wall Street is exactly an example of what Smith was warning [about]. Society is not really made to be a purely competitive operation. And I think we have learned that lesson, but I don't know for how long. The whole argument that nature is red in tooth and claw, and for that reason society ought to be like that, is flawed. Because nature is not like that. If you look at our close relatives, you see animals who survive by cooperating. Yes, there is competition; there is dominance, hierarchy. They sometimes fight. They sometimes even kill each other. But they stick together because they survive together much better than alone

I’ve already commented this week on Frans De Waals’ new book this week, but it occurs to me that I have something to add in a comment on the context of ‘competitive’ in human relationships.

It has long been projected that Adam Smith favoured competition, as if he had written nothing about co-operation. Yet, in the first chapter of Wealth Of Nations he describes the long, and complex supply chain that eventually produced a common labourer’s woolen coat. Nobody was in charge of the supply chain – members of it may not have known, nor did they need to do so, anybody a link or two ahead or behind their place in it. Yet it functioned, if not effortlessly, well enough to provide the consumer with a woolen coat. This required, if not conscious co-operation, at least effective and consequential co-operation.

Buyers along the chain are not in competition with their suppliers; they are in competition with the set of other buyers, as are the set of all suppliers in competition with the set of other suppliers. The failure to appreciate this simple fact misleads many, including, too many, economists who mistakenly attribute to competition vices it never had.

Take the parable of the buyer in contact with the “butcher, the brewer, and the baker”. Most readers of the paragraph containing the parable, who have not read and understood Adam Smith in his books, Moral Sentiments and Wealth Of Nations, go hopelessly adrift in concluding that there is a clash of self-interest between the buyer of his dinner and his suppliers. They even quote it as evidence of their error in not understanding self-interst in Smith's lexicon!

Bargainers make and receive offers, which Smith states clearly as a conditional proposition:

Give me that which I want, and you shall have this which you want” (WN I.ii.2: 26).

In short, the offers each makes are statements of potential exchanges they would accept. Until they find an offer acceptable to both of them, there is no deal.

The negotiation process is ubiquitous in commercial markets. Demanding everything for yourself and ignoring the demands of the other party is self-defeating.

In fact, Smith identifies how they reach a bargain a few lines further on:

We address ourselves, not to their humanity but to their self-love, and never talk of our own necessities, but of their advantages.” (WN I.ii.2: 27)

In short, we have to persuade them (not force them), which is an entirely different image in practice to that of high-energy competition.

Over many years, I have extolled the virtue of competing with our rivals, not our customers.

Humans are not “competitive to the core” (a blatant misunderstanding among too many Homo-economicus thinking economists); we are social animals and, because of language, more so than our primate cousins.

The Wall Street Journal, which carried a similar report (thanks Brian) on Frans de Wall’s work, (“Tracing the Origins of Human Empathy” by Robert Lee Hotz HERE
ends with:

"They crossed the bridge with empathy, to realize something that is completely exotic to them," says Dr. Danziger. "True empathy is the ability to imagine how others are feeling, especially people who are not the same as you."

Most humans will recognise themselves in this observation. Smith also would appreciate the conclusion as confirming his 18th-century assertion Moral Sentiments.

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