zaterdag 27 november 2010

Review of Paul Seabright's "The company of strangers"

How can we explain that humans are the only living creatures who cooperate with unrelated members of the same species on projects of high complexity and requiring a high degree of mutual trust?
This is the challenging question that Paul Seabright proposes to answer in “The Company of Strangers. A natural history of economic life”.
In case you might think that this is a book about evolutionary biology, Seabright points out right from the start that the time that has elapsed since mankind started living in larger social groups than his close relatives is simply too short for the genetic hardware of homo sapiens to have adapted to these new social surroundings. While he acknowledges that “the division of labour amongst human beings must have piggybacked on a physiology and a psychology that evolved to meet a far different set of ecological problems”, Seabright sets clearly out that this is foremost a book on the social institutions that make it possible for complete strangers, not just to live together in (relative) peace, but to actually enter into mutually beneficial exchange.
The wording “mutually beneficial exchange” will probably have rung a bell amongst those who recollect their “introductory economics” courses, and it will come as no surprise to them that Paul Seabright is indeed a professor of economics at the University of Toulouse.
Is this a book about economics then? Well, if, as me, you think that economics is a subject that does not just cover the analysis of market exchanges, but provides an intellectual framework for understanding all institutions that govern human life (including family, the law, religion, politics…), then this is a book about economics. If, as me, you think that economics and evolutionary biology use basically the same intellectual framework to understand life (note that Darwin himself has always acknowledged his intellectual debts to the classical economists), then this is a book about economics - or is maybe a book about evolutionary biology after all?
As will become clear in this review, it is close to impossible to put a label on this book, whose avowed ambition is to integrate insights from economics, philosophy, evolutionary biology, psychology and political science in an all-encompassing explanation of the human condition.
The actual contents can be summarized as follows.
In a first stage, Seabright shows that even some of the simplest activities of modern societies depend upon intricate webs of cooperation that function without central coordination – an enlightening passage on this issue is Seabright’s report of a discussion with a former Russian communist party official who cannot grasp that no one is actually in charge of the supply of bread in a market economy. Seabright claims that this cooperation is the result of the willingness of individuals to cooperate with strangers “in a multitude of small but collectively very significant ways”.  
In a second step, Seabright argues that this cooperation is possible thanks to a set of institutions that have often grown by experiment or as the by-products of attempts to achieve other ends. For instance, while the social division of labour is central to the human progress, it is only possible if participants can trust each other. Therefore, institutions are needed that ensure that “cooperation not only happens but is reliable enough for others to be willing to take its presence for granted”. Maybe surprisingly for people who have not been formally trained as economists, one such institution is… money. Because we accept money “in exchange for valuable goods in spite of the fact that we may know nothing about the individuals who are offering it to us”, it “is one of the great human inventions precisely because it helps to narrow the gulf between the ingenuity of each individual and the interest of others.”  Seabright goes on to explain that, paradoxically, human cooperation requires the capacity to participate in the creating of prosperity without knowing or even caring about the overall outcome (what he calls ‘tunnel vision’). However, Seabright is not blind to the dangers of ‘tunnel vision’ and illustrates at length that, for instance, codes of professional ethics can make individual acts of local cooperation more reliable, but can also generate blindness to the more distant consequences of one’s actions (just think of the Nuremberg trials). This part of the book also contains a detailed discussion of how “reciprocity”(rather than narrow self-interest or naive altruism) is the basis of successful human cooperation.
The third part of the book takes a look at the global consequences of human interaction: the development of cities, the impact on the environment, the functioning of markets, the development of large firms … While Seabright is not blind for some of the negative effects of human interaction (such as our impact on the environment), he rightly draws the reader’s attention to the capacity of markets “to calculate prices that summarize the information necessary for allocating resources in a world of scarcity” – not surprisingly, markets are one of those institutions that make complex societies possible.  Seabright also points to the (apparent) paradox that, while firms use the market externally, they have eliminated it internally and replaced it by explicit planning and coordination – this issue sheds a lot of light on the question under which conditions planning can be superior to markets (and vice versa).
Finally, part four looks at the institutions of collective action (this is, the political institutions) and discusses how they can deal (or not) with the collective problems of mankind. Seabright emphasizes that the human capacity for cooperation can be also be directed at destructive ends, and that no unduly trust should be put on political institutions.
In case you think that a book with this scope would fill a complete shelf in your home library, be reassured: the book counts merely304 pages, notes and bibliography included.
This is precisely what makes this book outstanding. It does not offer any original contribution to the scientific literature (nor does it claim to do so), but brings together insights from different fields in an accessible summary. Those who are familiar with those fields will find no big surprises.
For the interested lay reader, The company of strangers provides a very accessible and well-written non-technical introduction to the economic analysis of institutions. As each chapter is complemented by a list of notes that refer to the more specialized scientific literature, it can be the starting point for a long journey into this fascinating field.
However, despite its accessibility, the book is intellectually rigorous and specialist readers will also find the book worthwhile. Moreover, it is chockfull of examples that can be used to illustrate principles of economics to a non-specialised audience (including undergraduate students) – I am sure economists will simply love his criticism of Naomi Klein (simply put, No logo contains two important claims that  can obviously not simultaneously be true: (a) through the creation of worldwide brands,  corporations have become all-powerful (b) corporations are engaged in a desperate struggle to survive in competition from each other). Similarly, his demystification of the moral superiority of economies based on barter or gift-giving rather than monetary exchange, should be required reading for everyone.
I must now resist the temptation to reproduce all these examples in this review: besides making me a plagiarist, it would take away any incentives to go out and buy the book for yourself.
Does this mean the book is without faults? Well, of course not. There are some loose ends in the argumentation, and one is left with the feeling that, in the end, the central question (how did we evolve from small groups of hunter-gatherers to complex large societies) remains unanswered. But this is probably more an indication of the size of the intellectual challenge set by the question than of the book’s qualities. Also, I would like to have seen a more concrete discussion of some current global policy challenges, but this probably just a result of my own professional pre-occupations.
Simply put, this is one the books I wish I’d had written. Actually, I am wondering why you are still reading this review instead of ordering it!

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