Adam Smith predicted this years ago, and skewered the argument that many make in favour of predatory capitalism – that self-interest is the best way to allocate capital. A little enlightenment may come in useful for those wanting to debate the issue.
Hypocrites and Economists
We’ve already seen a bunch of research which shows that education, position and training is predictive of people’s ethical attitude to money. For example, in Game On: Basel III the research by Lammers, Stapel and Galinsky describes how more powerful people are perfectly secure in their own hypocrisy, routinely condemning the behavior of people less powerful than themselves, while seeing nothing wrong in engaging in it themselves.
Meanwhile, in Studying Economics Makes You Mean the evidence suggested that people with an education in economics were more likely to behave in the less than altruistic way that their subject predicts – a fairly clear case of reflexivity in action, where the respondents were able to use the justifications of self-interest developed by their education to defend themselves against accusations of unethical behavior.
If you start looking around you’ll find that the financial industry is beset by these types of discourses: the original economic argument by Adam Smith that enlightened self-interest was the best form of economic governance has mutated into an academic justification for unethical behavior. Sadly, “enlightened self-interest” isn’t exactly an easily understood term. Perhaps the closest we can get to this is the idea that we can get others to do what we want by appealing to the things that they want. As Smith puts it in The Wealth of Nations:
This type of self-interest isn’t the same as that frequently quoted by people within the markets seeking to justify screwing over some section of society: you can’t simply look to your own interests and ride roughshod over anyone else and argue that this is in everyone’s best interests, because it’s not. You need to offer others what they want in order to get what you want; it's called "trade".
Upbringing is Everything
In fact the research showing that an economics education makes people more self-interested wouldn’t have been surprising to Adam Smith either: he was convinced that the differences in the way that people behave was dictated by upbringing and education, and couldn’t possibly be determined by anything innate:
“The difference between the most dissimilar characters, between a philosopher and a common street porter, for example, seems to arise not so much from nature, as from habit, custom, and education. When they came into the world, and for the first six or eight years of their existence, they were perhaps, very much alike, and neither their parents nor playfellows could perceive any remarkable difference. About that age, or soon after, they come to be employed in very different occupations. The difference of talents comes then to be taken notice of, and widens by degrees, till at last the vanity of the philosopher is willing to acknowledge scarce any resemblance. But without the disposition to truck, barter, and exchange, every man must have procured to himself every necessary and conveniency of life which he wanted.”
So recent research by Paul Piff and colleagues, Higher Social Class Predicts Increased Unethical Behavior, wouldn’t have come as a shock to Smith, indeed he’d probably have been expecting it. The range of studies covered a whole range of less ethical behaviors from upper class individuals, including quite literally taking candy from babies. Neatly, though, in the last reported study the experimenters made the idea of “greed is good” salient to the lower class individuals by priming them, and promptly found that they behaved just as antisocially as their upper class compadres: leading to the idea that this is the default state of mind for the latter group.
Why Oh Why
Quite why social class inclines people to a greed is good mentality is hard to say, but a couple of theories revolve around social dependency and education. The social dependency argument is that upper class people tend to be more financially independent and have less need to rely on other people to help them through their lives – and, in Smith’s formulation, if you don’t have to rely on the enlightened self-interest of others then there’s no reason you should show it yourself.
The education argument is related to this: upper class individuals are more likely to have a received an education and an upbringing that emphasises the philosophical heart of modern economics; self-interest is good. As the researchers comment:
“Unethical behavior in the service of self-interest that enhances the individual’s wealth and rank may be a self-perpetuating dynamic that further exacerbates economic disparities in society, a fruitful topic for the future study of social class.”
In commentary about this research many people have drawn the conclusion that higher status equals higher wealth and have seen a direct connection with the inequitable returns extracted by bank employees in particular and chief executives in general and the evidence presented. Obviously the relationship isn’t that direct, many self-made men and women have worked their way into these types of positions without being noticeably less altruistic than anyone else.
Primed For Instability
The clue to this is probably the evidence on priming: working in an environment that emphasises financial rewards as your main goal is going to provide a constant stream of reminders that you need to act in your own self-interest. This is almost certainly exacerbated by the fundamental instability of life in the financial industry: as we saw in the The Business of Capital is Bust, the anthropologist Karen Ho has studied Wall Street from the inside:
“I had bankers telling me, "I might not be at my job next year so I'm going to make sure to get the biggest bonus possible." I had bankers who advised the AOL–Time Warner merger saying, "Oh, gosh, this might not work out, but I probably won't be here when it doesn't work out." I looked at them like, "What?" Their temporality is truncated.”
Put people in an environment where self-interest is rampant and where everyone is out for whatever they can get while they still can and you'll see the idea of enlightenment fly out of the window. Educate someone to believe this is true as a philosophy of life and you'll get the same result. Upper class people care less about the rest of us because that's the way they've been brought up, while economists are trained to believe it and traders are institutionalised to live it. For the rest of us, our enlightened self-interest should dictate that we avoid them all.
After all, the only way to really deal with a polecat is to keep it out of the henhouse. Either shoot it or build a bigger fence: but don't bother negotiating with it, it won't understand what you're talking about.