Comment on Prof. Becchetti's Paper

Thank you very much. This is a wonderful paper, and it is part of a wonderful tradition of civic economics, which Leonardo Becchetti, Stefano Zamagni, Luigino Bruni and other colleagues are promoting. I think this work of putting civic economics on the global stage is very important and something that we should very strongly support. It is grounded in the desire to overcome the reductionist fallacies that Leonardo described at the beginning. He named three: the anthropological reductionism of a completely self-interested homo oeconomicus, otherwise known in psychology as a psychopath who cares only about self-motivation and has no intrinsic, emotional or moral connections with others; second is the value reductionism of defining market transactions as the measure of what is good; and third is the corporate reductionism as defining the aim of enterprise to be the shareholder value. All of these have deep consequences for us, and I would say that there are two kinds of consequences to keep in mind. One is that we know, in many contexts, that a market economy depends, for its proper functioning, on what we call “prosociality”, which means that a market economy cannot result in desirable outcomes unless there is a prosocial attitude of its agents. That prosociality means a number of things: first, do not cheat on your counterparts, do not have financial fraud, do not create external costs, like pollutants, do not degrade the environment in ways that harm others. And one of the great questions of economics is how to achieve those prosocial outcomes.

There is a second dimension which I would just say is “sociality”, which is the idea that while prosociality is to make markets work for a society of homo oeconomicus, even for self-interested individuals, they have a desire for prosociality; in the sense that that is functionally important for arriving at good market outcomes or good economic outcomes. But sociality goes beyond that, it is to say that we, as social beings, not only look to our sociality to avoid cheating and fraud, and so forth, but to achieve what Aristotle talked about as friendship or kinship or camaraderie in society, and what we have talked about is inclusive solidarity.

So, it is that we have an intrinsic, not only an instrumental, desire for sociality because it is just not fun being alone in this world, it is a lot better to be part of society and the only people who completely go alone are, as Aristotle pointed out, insane. And this is another reason why the sociality should count. So, there are really two issues that face us, one is to get the right kinds of outcomes to ensure behaviour that is functional from a social point of view, not only from an individual point of view, and the second is to reap the benefits of being social beings, because that is an intrinsic part of our well-being.

If you look at these reductionisms, they fail on both counts. They certainly fail on prosociality, in that the assumption of homo oeconomicus is an invitation, in fact, to behave badly – abuse of the others for the sake of getting private gain. And, that is why it is famously known that if you put economists and economics students in a room together and have them try to cooperate they do miserably. They are trained to cheat on others, as long as that is within the behavioural framework that they are acting in. If you put nurses in a room together they cooperate with each other – they are not trained to cheat on each other. Probably, in both cases, by a bit of self-selection and a bit of training, one group cooperates and the other is disposed to “defect”, as we say in game theory. Maybe, it is very unfortunate that nurses do not run the world, but economists are much more likely to run the world, and that means that we are living in a much tougher environment. Of course, value reductionism, measuring things by GDP, is profoundly flawed because we do not count most of what is important in life, as Robert Kennedy famously said in 1968, and many things that we do count are ills of society rather than the goods of society.

And, finally, corporate reductionism is like homo oeconomicus, it is an invitation to companies to do whatever they can to raise their shareholder value, even at the deliberate cost to the rest of society. In Milton Friedman’s telling, with the asterisk “as long as it is legal”, that is the only standard. Not whether it is right or wrong, moral or immoral, positive or negative, in true value added, but rather whether it is legal. And that is what I quoted yesterday of Mr Shkreli who says he devotes his life to raising drug prices a thousand times higher because it is only in the service of his shareholders, after all. That is a kind of demented social view and this man probably is a clinical psychopath from everything that we have seen about him. But, in any event, it is a professional view that is held by the largest industry nearby where I live, which is Wall Street, and it is embedded by the second largest industry where I live, which is Madison Avenue, and both of them are designed to maximize share value notwithstanding the costs to others.

So, the question is how to achieve prosociality? One of the main points of civic economics is that we have a wider range of tools that we have conceived. Many of the tools include law, contract, punishment, lawsuits, and so forth, but another part of the answer is to tap into our semi-altruistic nature and be able to use that to leverage prosocial outcomes. There is a debate in economics – of course, it is a debate that goes a long way, I think the Church has given the right answer to it – “Are people altruistic or are they selfish?” And the answer is yes, they are both. The idea that altruism reigns is not right, the idea that pure selfishness prevails is not right. These are matters of choice, of morality, and I think the word that I would like to emphasize is also of cultivation; that you cultivate values, and that is what virtue ethics is about. Virtue ethics is not that people are virtuous or unvirtuous, it is that you cultivate virtue, that, indeed, a core purpose of life is to develop virtues and it is a core purpose of society to build virtues, and that is actually, of course, what the Nicomachean Ethics were about, not only defining what is virtue and what is Eudaimonia, but also how virtue is cultivated through mentorship, through habit, through example and through education; and education provided by the state, in the case of Aristotle’s polis. So, I think that the question is what tools are available and what Leonardo is bringing in is the idea of the moral consumer and the moral producer as real potential agents in society and, of course, we see examples of this. We see consumers who buy fair trade coffee, and Leonardo gave us many examples on the screen, we see producers who abide by standards that go beyond shareholder value. So this is not a myth.

There is a major question of how to cultivate it. I am not convinced that it is as contagious as you say, because we know that virtue is partly contagious, yes, but it is also partly invadable, as we say in game theory. It is not necessarily evolutionarily stable, as game theorists say. Meaning, if everybody is virtuous and you add in a sociopath into a society of virtuous people, that sociopath is going to have the run of the day, they are going to be able to exploit all of those trusting, wonderful people.

One of my favourite movies is called “The Invention of Lying”. I do not know if people have seen it – do people know that movie? It is movie were in society everybody is a truth teller, and then one person discovers lying, and he discovers how much power he has in that society. In the end, he tries to use it to manipulate, to win the girlfriend, in the end, and he does so but, then he, of course, finds his moral core despite all of this. But, in the end, the last scene is the child is born and the mother serves the food and obviously the father and the son look at each other, how horrible the food is, and the mother asks, “Is this good, son?” and he says “It is wonderful Mommy!” and then he winks to the father. Now, that is the end, the child has inherited the gene of lying, is the point. If you take that from a purely evolutionary psychology point of view, it shows that the truth-telling society is invadable by liars. And it means that, what we know from game theory, that pure truth-telling is not stable, it can be invaded by creeps.

This is a big challenge, because we are constantly being undermined, of course, by evil – that is a real ontology. Being good in this world does not lead necessarily to good outcomes at a macro level, and it is very interesting analytically. I do not think economist have done an adequate job, at least as far as I know, to understand in which kinds of industries one can sustain good moral outcomes and which ones are less susceptible. For example, it is clear that consumer-facing industries are much more susceptible to the vote by wallet than are the big oil companies. This is obvious because consumers face Unilever or Nestlé or Mars or Coca-Cola or PepsiCo everyday and these companies, whether they are cheating or not cheating, care about their reputation as a result, and so this matters. The big producer companies that do not face consumers really do not care very much. And the financial markets probably care the least, in practice, because, if you are trusting and you undervalue an asset because you do not like its moral behaviour, you will be arbitraged. In other words, someone else is going to buy the asset and someone is going to be able to borrow heavily on the market and even take over that innocent little company that tried to do good. And that is how Mr Shkreli makes a living. If a drug company tries to do good and it therefore earns less profit, he will swoop in and say “You idiots, you were charging 1000th of the price of the drugs”.

So, I think the question of what can work, in what ways, is a very practical question. I do believe that there can be some contagion, but I am not convinced by the formula, by the way, because the public good part, the pi beta in that formula, seems to me to be independent of the individual action. You are just one, so your marginal result does not depend on pi – so pi beta is just given for you. So, it is not an individual incentive, so I do not think you have got the proof of the contagion there – the way that it is stated, at least.

So, what are things that we can do were we have seen some contagion? Things like divestment from fossil fuels is a good example, where there is contagion taking place. It is not necessarily complete, but it is an example of what you are talking about, that I think is very powerful. Trying to get companies in the apparel sector not to have child labour in their value chains has been a highly successful activity, and I think the role of the Church in demanding the end of modern slavery is going to give an extremely strong new impulse to this. So this is absolutely powerful, but within limits, and we have to understand those limits.

What are other tools that we should be championing? Of course, one is corrective pricing. So, it is not only cooperation, but it is feed-in tariffs, financed by putting taxes on “bads” and thereby subsidizing “goods”. This is a standard strategy that has merit to it. Another which I really like and commend is spreading class-action lawsuits, making it easier. What I mean by that is that another way to defend against the bad is to sue the companies that impose costs on others. Usually, this is extremely difficult because you have corporate giants against individuals and, indeed, the corporate giants, every time you click an “I agree” on a website right now, you are also clicking – somewhere in the 50 pages of tiny print – that you will only go to arbitration, you will never go to a lawsuit. We have tried to close down class-action lawsuits as a remedy for abuse but companies really do care about this. Volkswagen was just fined 16 billion dollars for its cheating on the pollution, but that was the US government as the plaintiff in that case. BP paid about 30 billion dollars for the oil spill, but once again it was the US government that was the main plaintiff in that case. We need to find ways for individuals to be able to protect their value also and class action is one way to do it. So, let me stop here by strongly congratulating Leonardo on the analysis and, even more, for the championing of civic economics, it adds a whole new set of tools to our arsenal. In all public policy, if you debate should you do ABCD and E? The answer almost always is to do all of them. In other words, you have to use almost all the tools at hand, and you have introduced some very important and powerful tools to add to the arsenal for the common good. Thank you


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