Review of Paul Seabright's The Company of Strangers

Paul Seabright's book The Company of Strangers: A Natural History of Economic Life is one of the most interesting and thoughtful works I have read in decades, and I highly recommend it to anyone interested in public policy and economics, especially those working in international development, environmental studies, finance, or international relations.

Seabright begins by asking some fundamental questions about human economic life. One of the most puzzling of these is, given that it is almost unheard of for animals, including our own prehistoric ancestors, to cooperate with anyone outside of their own family, how are modern societies based on trust, in which one routinely deals with total strangers and non-relatives, possible? He goes on to explore the history of prehistoric and modern developments which make cooperation with non-relatives possible. In the course of this exploration he explores money, markets, property, military defense, agriculture, cities, language, writing, the banking system, and other vital institutions.

On the way, he develops the theme of human "tunnel vision," the tendency of individuals to act according to their own individual preferences, without regard for the consequences of this for the group as a whole. Sometimes these consequences are good, including, with the spread of trade and markets, rising standards of living even for the poor--and sometimes bad, like pollution. (Other economists, like James Buchanan and Viktor Vanberg, have developed similar themes in their paper on "action interest" versus "constitution interest," in which the individual's narrow self-interest is contrasted with the interest of the group as a whole. Adam Smith's "invisible hand," John Locke's concept of the "common good," and the concept of the "general welfare" referenced in the U.S. Constitution are working the same territory). 

As I proceeded through the chapters in this book, I became very curious to see where the author was going with all this. In wrapping up, he presents several main points. One of these is that globalization is the natural outcome of thousands of years of the evolution of the human mind and human institutions. The second is that although globalization has many benefits, it will also give rise to serious problems in some quarters--and human evolution does not naturally equip us to resolve these problems easily. Some new practices and institutions might be needed (he does not try to specify what these might look like). He also warns about the dangers of the current trends in the balance of power. With the United States so easily able to dominate the rest of the world in conventional military might, trust will be very hard to build and maintain. Thus in a nutshell, he cautiously defends globalization, and warns against overuse of military power. This is all very much worth thinking about and worthwhile.

Reading the book today, however, some years after it was written, I must say that the ideas he develops in the first part of the book about trust and human institutions, now lend themselves to speculation about political crises other than concern with globalization. One example is the trouble with balancing national budgets which has come to the fore in the past year or so. There is good bit of tunnel vision underlying this; everyone seeks to take from the federal coffers, as if they were bottomless--but the money must come from somewhere, and such a system is not sustainable in the long run. And, perhaps related to this, as if everyone were half expecting to be called on to pay this very large piper, there is a general crisis of trust.

One of the subjects that Seabright explores is the question and how problems that arise--crises in trust, pollution, unemployment--are resolved. Markets, though fragile, can be self-correcting at the micro level, though this can be painful. Sometimes, though, new institutions and rules evolve, and sometimes can be designed through an intellectual and political process. But the design process itself is a human one, beset with problems of tunnel vision.

I hope that next, therefore, Seabright will tackle the question of whether the systems and forces he identifies have natural limits--whether there are some problems that will systematically fail of being corrected at any level. That is, it it would be comforting to think of the evolutionary process he describes (in which problems develop, followed by solutions at one level or another, followed by the next set of problems and solutions arising in turn) goes on forever, with the problems humanity must confront being of a progressively higher order. But it seems more likely, since the process of improvement is an accidental one, resulting from the fortunate confluence of a lot of factors, that at some point, at some level of complexity, at some scale, or at some scope, that human institutions like democracy and markets will reach the limits of their effectiveness, and we will be stuck with systemic problems that require a whole new order of solution to resolve.

Just how hard it is for human beings to escape their own situation of individual patterns and preferences, and the institutions that had adapted to cope with these patterns, I explored for myself in the weeks following my reading of this book, as a sort of thought experiment. As I went about my business during the day, I tried to be conscious of the larger consequences of my actions for others, particularly when my actions imposed costs on others without my directly being aware of them. The effect of this kind of consciousness can be, I found, at times quite paralyzing. Throwing away garbage, in particular, becomes a depressing act, but still unavoidable, as it certainly cannot stay in the house. Engagement in markets (aka shopping!)  was made more enjoyable; it is amusing to be more aware of the highly evolved levels of trust required for this seemingly simple act, and how it would go against the grain for other primates. 

On the whole, an excellent book, though for every insight it offers one finds a new cause of frustration. Understanding the origins of problems is only one small step towards fixing them. It sometimes seems as if humanity is more likely to happen upon effective rules and institutions mainly be accident, in an endless and brutal process of trial and error, than by deliberate design.

Comments

[Laurent Franckx]

I found it interesting to read this review, just a few days after having posted a review of the book myself on my blog.
I think we both share the enthusiasm for the book and that we broadly agree on the general theme of the book. I also understand that we both find that Seabright remains quite vague in his description of possible solutions.
There is one point where I would beg to differ with you, and that's on the causes underlying the exploding deficits of the last few years (I am not talking about the structural causes, such as demography of course). The basic reason is a collapse of trust in the finance sector (which, of course, has followed a period of excessive trust). Two years ago, banks wouldn't lend to each other (note that the root of "credit" is the Latin "credere", "to believe") because they could not trust that the borrower's balance sheet was not filled with toxic assets such as subprime mortgages; this, in turn, resulted in banks not providing credit to the private sector, and thus not fuelling demand. In these circumstances, having the government stepping in to restore the trust that does no longer exist between private sector actors, is the only option that is left open. Of course, one still needs to be able to trust that the government will eventually reimburse his debts, but, again, this is an issue of long term sound fiscal management. It does not prove that the increase in budget deficits we have witnessed is bad policy.
Also, I think that your final point (that institutions develop by trial and error rather than by deliberate design) is perfectly consistent with the contents of the book (although, of course, this does not imply that there is no need for deliberate design at all, just that we should not underestimate the - positive and negative- power of trial and error processes).