Wednesday, March 28, 2007

Social Change Driven by Free Markets

Being a pretty adamant libertarian (there, it's out), I'm often forced to explain how free markets can bring about a particular desired result. Usually I just dodge the question by asking, "desired by whom?" However, there have been a couple recent articles on the subject that I think are pretty interesting. The NYT talks about Burger King's decision to phase in cage-free eggs and crate-free pork. In this case, public pressure - I don't believe there was a sniff of government action here - was sufficient to get one major company on board. Burger King simply believes that enough people prefer a more socially conscious choice to justify the increased cost.

Do these people really just prefer the good that comes out of these changes? A WSJ editorial (subscription - see an extended blurb at the Volokh Conspiracy here) suggests that people make these choices in part to display to others that they're socially conscious, and therefore gain status. A prime example of this is the Prius - part of its success was probably that it looked different, and therefore you could easily be identified as driving a hybrid. But here's the best part - it doesn't matter! Theory A - Someone values animal welfare, and therefore supports businesses who use cage-free eggs. As more people agree, businesses are forced to respond, and animal welfare increases. Theory B - Someone values what other people think about them, and those people value animal welfare... In fact, Theory B is just a way for the effects of Theory A to be amplified, which in many cases is a good thing. (Humans display a great deal of pack thinking, which presumably was very useful in prehistoric times when information was limited. Perhaps more on this another time.)

Someone in my lab refuses to eat chocolate that is derived from child slave labor. The remainder of us haven't exactly followed suit, but I've certainly changed my behavior somewhat - I buy the non-slave labor chocolate when it's an alternative. It's a small step but I'm optimistic that in the end, Hershey, Nestle, and the others will pay the increased cost (and pass it on to a willing consumer) to be socially conscious.

Virtue is not only possible because we value being good to those around us. It's also because we have all evolved, to some extent, to get along in the group, and that includes making choices that benefit the group at a cost to the individual. Government isn't required, just the ability to remember a face (and even monkeys can do that).


Alan Rosenwinkel said...

The idea that humans have evolved to function well in a group context, which Dave mentions, is really interestint to me. Dave recently turned me on to evolutionary psycology (wikipedia) and although I don't know much about it yet, I have a copy of The evolution of cooperation on my desk just waiting for me to read it :-) I have learned one interesting thing so far (from dave) on the topic -- The fact that people tend to feel good about helping others and also feel good about taking revenge on those who hurt them (tit for tat) is desireable trait, from an evolutionary perspective. Hopefully I'll have more to say about this once I get off my ass and read the book :-)

Donnie said...

Bah. We value being good to others only after we've taken care of ourselves. If a person (say, a CEO or a middle-manager) feels like they deserve more, and are in a position to do so, they'll take advantage of others. I can't say I share the same idealistic outlook.

There's one troubling issue that rises way above questions of whether markets can straighten themselves out. It's the simple fact that for a market to equilibrate, there have to actually be opposing interests that come into some kind of balance. That means, companies actually try to get away with using child slave labor, until such point that there's a public outcry and corrective pressure is exerted. Companies have to try getting away with using dog-fur on faux fur garments, until people make a big deal out of it. So, to me that says the system already has serious issues, whether it can eventually correct itself down the line or not. In other words, for these kinds of things to "work themselves out," somebody has to have the bright idea of screwing other people over first. This isn't a problem of libertarianism per se, and certainly isn't present only in capitalist systems. This is why I am a little more cynical about these kinds of things.

Finally, I am curious if there are markets that cannot correct themselves, because people simply cannot mount enough pressure to move the market in the desired direction. (This gets to the "Desirable for who?" comment, which is in fact dead on.) Let's say, for example, you have a major international corporation worth many billions of dollars. The headquarters is located in a foreign country whose government looks out for the interests of that company. Then, let's say that the company has a total monopoly on a particular product, which is maintained and leveraged to fix prices on that product. Then let's say that the company exploits and oppresses massive numbers of people in order to bring its product to market. In situations like this, it takes a really long time for the market to shift to an outcome that is desired by most people. And I would suspect (although I haven't explored this personally, not being a libertarian) that a libertarian approach doesn't really take care of the obvious moral issues present in that situation. At least, not very quickly.

Did you guess DeBeers? What I wrote is a description of how DeBeers operated for a long time, until apartheid finally ended in South Africa. So the outcome was desirable for the DeBeers owners and stock-holders, but not so much for the multitude of oppressed Africans who had to work and live in awful conditions.

dave said...

"We value being good to others only after we've taken care of ourselves. If a person (say, a CEO or a middle-manager) feels like they deserve more, and are in a position to do so, they'll take advantage of others."

I'm not saying people will always do the "unselfish" thing. But they will be more likely to do it than if they were motivated by pure, short-sighted greed. The reason is that human beings benefit greatly from being part of the group (because of division of labor and comparative advantage) so we've evolved group-friendly behavior.

For instance, take the example Alan is referring to, the ultimatum game. One person is told to divide up a given pot (say $100) between himself and another player. The other player can then choose to take the portion offered to them, or decline, in which case neither person gets anything and there is no second chance. If computers played this game, the first one would always offer $1, and the second one would always accept (since $1 is better than $0). This isn't how humans play, however. Offers are close to 50%, and low offers are rejected. Why? A hint came from functional MRI studies, which showed that people feel bad when given a low offer and feel good when they reject it. We've evolved to value things other than our short-term interest, because in the end it's often in our long-term interest (because we gain a reputation of not being bullied, etc).

An extra bonus is that this often works even when it isn't in our own long-term interest. When players know they are going to play the ultimatum game once, it is entirely in a person's economic interest to accept even low offers. But the mechanism is not precise, so we behave a certain way because on average, it works.

So the point is not that people will always be cooperative, because we do not place infinite value on being good to others (if we did, we would be taken advantage of too often and be selected against). Instead, we should try to maximize the situations where the desire to be nice to others is an important component of decision making (one part of that is being able to recognize who is and isn't playing along - hence the monkeys). The studies show that our intuition - to expect people to take advantage of others whenever the opportunity - is not correct.

(Also, as for the deBeer's example - I agree that they suck, but it's hardly an example of a free market. "government looks out for the interests of the company", "total monopoly" etc.)

Donnie said...

That "free market" point is a good one. I need to read more about libertarianism so that I don't cite examples that don't satisfy all the necessary criteria! :-)

Alan Rosenwinkel said...

"We value being good to others only after we've taken care of ourselves"

Also, people will favor those in their own group(s) at the expense of other groups. After all, from an evolutionary perspective, the goal is to survive (or for your DNA to), often at the expense of others who don't. Take Caltech's honor code for example: I imagine one reason that it works (better than at other schools at least) is that the undergraduate population is small enough for people to identify it as a group, and identify the people in it as part of the group.

dave said...

It's also interesting that the size of an animal's social groups correlates very well with the relative size of the neocortex in the brain. This would predict that humans should gather in groups of about 150 - basically because this is the number of people we can keep straight. I think technology available only to humans should be increasing that number - for instance EBay's feedback system has a possibility of working in extremely large groups because it doesn't take as much neocortex to develop the internet as it would to remember the faces of a million people and whether they've screwed anyone you know in the past.

dave said...

On a technical note, I'm including a lot of links to original research material; how many of us do not have access to these journals? I could put some more work into finding freely available summaries.

Also, many of the studies I referenced I found out from reading Matt Ridley's The Origins of Virtue. Another useful text is Richard Dawkin's classic The Selfish Gene.

Blogger said...

Anybody else is interested in getting a FREE BURGER KING GIFTCARD?

php hit counter