Trust and Behaviour in Ireland’s Liberal Market Economy

I am almost finished reading ‘The Spirit Level; Why More Equal Societies Almost Always Do Better’. It is a fascinating book based upon 30 years of comparative research. The fundamental argument is that rich western societies have bypassed the threshold whereby increased economic growth  increases human welfare. Human welfare is understood as ‘human well being’, particularly in relation to physical and mental health. Material wealth is not increasing societal well being. It then presents a detailed statistical and qualitative analysis of levels of drug abuse, physical health and life expectancy, obesity, educational performance, trust, teenage births, violence and social mobility between western economies and amongst US states. The conclusion is that inequality is the CAUSE of all these social ills, and decreasing income inequality decreases social anomalies and ultimately makes everyone in society happier, no matter where they sit on the ‘social’ gradient. More unequal societies are more hierarchical, and people more conscious of their social status, which in turn creates more aggression, competition and societal imprisonment.

I will write a detailed review and reflection of the book in the next few weeks, but one section of the book caught my attention and made me think about two incidences I encountered over the past fortnight. Most people agree that market economies cannot function without trust. Consumers need to trust producers. Producers need to trust suppliers. Industries need to trust regulators. Regulators need to trust companies. Companies need to trust management. Managers need to trust employees. The whole variety of strategic interactions that take place under capitalism are premised upon a certain base line of communicative rationality, or more simply; trust. Eroding trust damages the capacity for strategic interaction. The most common example of this erosion is lying. If companies lie to their customers, or managers to shareholders, or shareholders to bankers, or bankers to regulators, or managers to workers, or workers to each other they will undermine their capacity to have any meaningful relationships/networks. The same applies to personal relationships. If we do not trust friends or partners then the whole relationship becomes degenerate. The same applies to civic associations, trade unions, voluntary organisations. In short, a lack of trust damages society, and a society with less trust amongst people is not a very healthy society.It damages social relations, the very basis of all societal subsystems (market, administration etc).

The Spirit Level illustrates that thrust cannot thrive in unequal societies. As inequality increases, trust declines. In more liberal market economies such as the US, UK and Ireland, whereby societal coordination is more dependent upon market strategies inequality is higher. There is a spectrum of inequality between and within these countries. The US, is far more unequal than Ireland for example. But, comparatively Ireland, by all standards, has high levels of income inequality. The impact this has upon trust has been on my mind all week, and I encountered two direct examples of it in the efficient ‘private sector’. Two weeks ago, I upgraded my mobile. I have had the same phone for two years and could get an upgrade for €20. So, I went into my local Meteor store and bought the phone. As we were concluding the exchange the salesman looked at my recent bill. He made a very convincing case that I would save €15 a month if I changed over to another programme. He seemed very genuine so I signed up (without thinking about the incentive facing him, as a salesman, working on commission and bonuses, a similar incentive structure facing bankers, and look where that got us).

Four weeks later I went on-line to check my bill and noticed that it went up by over €20. So, I went to a different Meteor store and explained what had happened. I was pretty annoyed because I had been lied to by the company. The advise I was given was quite shocking. The manager encouraged me to ring up customer care and lie to the operator. He told me to tell them that I never signed the contract and I would get a refund. I left the shop, rang customer care and told the lady that I had just been encouraged to lie to her, but I would not and honestly explained my story. I got the refund by being honest. This whole episode was a classic example of the micro-behaviour that has Ireland in its current economic crisis. Whether it is senior executives, senior bankers or local shop clerks, there is a culture of short term interest in Irish business (whether traded or non-traded sectors) which has long term effects. The culture of ‘hoodwinking’, ‘you scratch my back and I’ll scratch your back’ is small scale corruption with wide societal consequences. It does nothing for society, economy or politics.

The second episode occurred yesterday. Last week I bought a hoodie on sale. I rarely buy clothes, and seen this in the shop window as I was out walking with my partner. It was half price, so I decided on impulse to purchase it. The next day I noticed that the inside sleeve was all ripped. I brought it back yesterday. The lady behind the till was very accommodating and very friendly (like the phone guy). She gave me a new hoodie, and put the damaged hoodie back on the shelf. In her words ‘it will save me the hassle of going back through the books, hopefully the next person wont notice, if that one rips, come back to me and I will try get you a refund’. I just laughed and left the shop. But, again, the moral of the story is consistent: this type of behaviour has social effects, and cumulatively, it is one of the primary reasons why the Irish economy is the way it is. The incentive structure facing all market actors in liberal market economies is short term gain, immediate maximisation of profit, and passing responsibility on to someone else.

This type of behaviour creates waste and inefficiencies. It is endemic right across the private sector. Yet, we are constantly telling ourselves about the efficient, lean and competitive traded sector in Ireland’s economy. We are constantly telling ourselves: it is the public sector that is the problem. Nonsense. The problem in Ireland’s economy is deep rooted in societal behaviour and if the Spirit Level has anything to teach us, it is that this societal behaviour is effect of deep seated inequalities. So, if we want to improve or economy, and the behaviour of market actors, we might best start with decreasing income inequality.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s