The economics of government 2.0

{This is the original version of an article that appeared from Dec to February in two installments in the Canberra Times}

Australia has an official policy, pursued by the Ministry of Finance and Deregulation, on the relationship between government and the web that attempts to outline how the government will take advantage of the ‘opportunities’ opened up by the web. Similar undertakings are in progressin many countries where governments are struggling to come to terms with the role of government in the online age. ‘Our’ policy, which is still under construction, has been kicked off by accepting 12 of the 13 recommendations of the ‘Gov 2.0 taskforce’  led by Nicholas Gruen.

In this blog I will attempt to sketch the political economy of the enterprise so that it might become clearer, to those schooled in the language of markets and incentives, what is going on. The three main tenets of gov 2.0 as I see it are to put lots of documentation online, to tap into the free lunch of online volunteerism, and to make money from the government’s unique ability to identify you and tax you. Apart from talking you through these three main tenets, I will also try to dispel some particularly confusing myths doing the rounds about gov 2.0, in particular the idea that gov 2.0 will lead to more ‘participatory democracy’.

Online documentation

The main economically relevant idea of the Gov 2.0 taskforce is to put a lot of information that the government has online, under the philosophy that the information produced by the government is owned by the public at large. An added reason given for this by the taskforce is to encourage all kinds of good things (participatory democracy, open government, etc.). The economic use of this information would be to allow consumers to more quickly find out what the regulations are and where to find government services. Of course, the most relevant information (tax rules, penal codes, health advice) is already online.

The political economy of putting more information out is clear: you will need armies of additional bureaucrats to put everything online and to maintain a web presence. The wholehearted support of all departments to this part of Gov 2.0 is thus only natural.
Will all information be put online, including the privacy-sensitive information and the potentially politically embarrassing stuff? We will have to wait and see, but probably not. On the whole, the online documentation part of Gov 2.0 is a straightforward expanse of the bureaucracy without much clear benefit to the community. Will I as a researcher for instance get access to the unit census data? No way, because people are promised confidentiality when filling in their census form. Will the government publish the data that allows us to look at which hospitals have higher mortality rates? Don’t hold your breath. Will the internal deliberations be made public concerning sensitive areas, like defence contracts or Aboriginal affairs? Again, don’t count on it. The one thing you can be sure of is that we will get an avalanche of online information that will cost a lot.

The free lunch
The free lunch that the internet, quite to the amazement of classically schooled economists, has unearthed is in the willingness of tens of thousands of volunteers to provide pure public goods to the world community at zero cost. Retired house mums write brilliant entries into Wikipedia. Unemployed layabouts generate free code for the Linux operating system that anyone can download anywhere for free. Bored civil servants sift through millions of lines of old documents in online state libraries and correct the spelling mistakes.
The free lunch provides everybody, including government, with the opportunity of getting something for nothing. Government is particularly well placed though to get something for nothing because it has already taken up the mantle of working ‘for the good of all’. Hence the thinking is that it should be easier for the government to get volunteers to do work for them than other organisations.
Online volunteerism has particular characteristics that one has to look out for when tapping into it. For one, it is very sensitive to the illusion of autonomy: give your volunteers too many rules and guidelines and they will walk away. Also, the volunteers seem to be attracted to the idea of working on something universal that will last for a long time. Lastly, the volunteers seem to need extraordinarily little recognition.
Gov 2.0 is thus partially about getting that free lunch, but it will have to adapt to the rules of the online game in order to get it. In particular, they have to be somewhat relaxed about control and trust more in peer-review self-correction mechanisms as opposed to bureaucratic criteria. Old habits die hard of course, so a lot of gov 2.0 is about trying to school parts of the bureaucracy in being relaxed.
Where can the government use that free lunch? The usual examples bandied around are in terms of having its documents checked and improved. And the government has many documents that need improving, ranging from information as to how laws should be interpreted (where the advantage of tapping into outside expertise would seem great) to local council websites (which outsiders are probably far better at improving than insiders) to self-help for questions about regulation.

The free lunch however can also be used to generate information that does not yet exist, information that both governments and the electorate would want to know. An easy example is to have a website where constituents can alert their local council to potholes in their street, faulty streetlamps, drug-pushing neighbours, and loud parties. More complicated systems could include feed-back systems on the quality of hospitals and GPs, which is something of great interest to departments and patients alike, but where the information gathered via official channels is deliberately manipulated and hence quite inaccurate. Peer-ratings of medical services can potentially do what scores of government statisticians cannot, if only because volunteers are not hindered by the demands of a bureaucracy to take official documents seriously. What goes for hospitals also goes for schools, army units, police stations, etc. Since volunteerism has given us damned good online encyclopaedias and rating systems for movies and books, it might also be useful in rating government services.

The political economy of this part of gov 2.0 should now also come into greater focus: relying on volunteerism might be a free lunch, but of course also means a reduction in the power of current insiders. The power of judgment will then shift to the designers of the online systems, to the amorphous mass of outside volunteers, and to the inevitable gangs of manipulators that would form as soon as real money starts to hinge on these systems. This disenfranchises the incumbents and creates opportunities for others and will thus be bitterly resisted by the incumbents whilst only lukewarmly supported by those who think they might gain. This part of gov 2.0 will be a long slog. It is hence not that surprising that the one recommendation of the 13 in the Gov 2.0 report that was not taken up by the government was the recommendation on ‘e-philanthropy’ .

The market for online government services

Government is the natural monopoly of violence. It is the only institution in our society that has the power to find and punish you, a power it uses for taxation and the enforcement of laws. Any other organisation that would try to mimic this power is guilty of treason and subject to the highest form of punishment our societies are willing to administer.
The monopoly of violence comes with several unique bits of information: who you are, what your tax record has been in the past, what your medical record has been, what your criminal record has been, what property you own, and what liabilities you have acquired (divorce, kids, etc.). No other organisation has that information and is allowed to use it openly.
This information is worth something in the online world where many people deliberately misinform others of their identity and their track record in order to sell something (often themselves). Being able to credibly signal your past and your identity is then worth something in all situations where reputation is important, such as when significant amounts of money or pleasure are at stake. The internet thus creates a new market for the comparative advantage of the government.

The simplest product a government can sell to the internet is an identification technology: the means for you to prove you are who you say you are. Governments have the power to invent that technology and to use its coercive powers to prevent others from abusing it.
This basic product can also be used in conjunction with other activities, such as the volunteerism market. Governments can use their identity technology to make sure that only Australian citizens whose children go to a local school are able to peer-rate that local school. Governments can ensure only ex-patients and their families can rate a hospital. In short, governments can enhance reputation mechanisms on the net and will often be able to charge for it (bona fide sellers and buyers on ebay would probably be willing to pay a percentage to be able to signal their identities).

The political economy of this aspect of gov 2.0 is much less fraught with difficulties than tapping into volunteerism: we are here talking about an expansion of government into new markets for its services, something that does not require insiders to give up power but rather something that allows insiders to expand their power. It does require a bit more of an entrepreneurial spirit than is usual in government, but governments have in the past been involved in setting up new businesses and know how to do it when they have to (eg. set up state companies and partnerships).

Red herrings

A couple of red herrings keep occurring in the discussions around gov 2.0. It is useful to list a couple of the most frequently encountered ones:

1. The internet has changed the rules of the game of public goods provision. Look at google and twitter, which are global public goods provided by private companies. Government too must become more like google. The fallacy here is to fail to see the actual business model of the googles and twitters of this world. They run on the same business model that radio, television, and newspapers have run on for more than a century: they run on advertising, including ‘sponsored links’. Advertising is rivalrous and excludable, which is why google and twitter can charge for it. The reason that the public goods of the search engine and the social chat-rooms are provided in google and twitter is because they create such enormous traffic that the small bits of the surplus that can be siphoned off are worth enough to produce them. There is nothing new about this phenomenon. It has been the same story with radio, newspapers, and television ever since their inception: for those three services too, the business model was always that they never charged directly for what they produced but rather that they charged private companies for access to the traffic they created. The basic business model of the internet is thus centuries old. Just as the advent of newspapers did not change the business model of the government (which is to identify a population and tax them under the philosophy of doing the taxed a favour), neither will the internet. Public goods that create enough surplus to be socially desirable but that do not create enough traffic to warrant their private provision by those who can only siphon off a small part of the surplus will still have to be provided by government.

2. The internet has created a new market for reputations that should be used by government, i.e. people who make their reputation in blog-land should be hired as top civil servants. I am afraid this is wishful thinking. Again, the analogy with radio and television should make it clear that the reputations that can now be earned by activities on the web will not translate themselves into reputations inside bureaucracies. The internet is simply a new way to become famous. Whilst fame is convertible into political capital and thus useful in elections, it has not proven to be convertible in bureaucratic capital. Have brilliant writers and actors made it as politicians? Yes they have, and good examples are Churchill and Reagan. Have they been put on government selected committees? Sure they have. But have they been able to break into the career development paths of bureaucrats? No way. The one avenue I see becoming possible is that internet reputation might be convertible into academic reputation in the form of honorary doctorates and the like. This has happened to famous writers in the past and I wouldn’t be surprised if some universities specialise in the accreditation of internet fame at some point. Academic capital has some traction inside bureaucracies.

3. The internet has changed the way science is done in that any clearly defined puzzle can now be opened up to the world community. Examples of this then include companies that run prediction competitions and invite solutions from around the world. The basic thing to note here is that the internet has greatly reduced the search costs of finding people to do work for you. You can hence suddenly find people in Kenya to solve your chess problems or unemployed Russian mathematicians to set up a peer-review system for movies. In essence this is not a departure from normal market economics but a move towards it: over time this will simply lead to a convergence in prices asked for such solution activities. Whilst firms who are first onto this market will find bargains and will be able to get a lot for almost nothing, this is not a viable long-term business model for science and even for most problems. It only works for very well-defined problems with limited cultural idiosyncrasies, and is only cheaper than other channels in the short-run whilst market prices adjust to the lower costs of finding alternative suppliers.

4. The internet has opened up a new medium that will revolutionise our democracy. Armies of volunteers will scrutinise government decisions online, hold local councillors to account for their decisions, alert departments to the crime and traffic problems they have yet to solve, and will be the new forum where politicians engage with the citizenry. Again, most of this has to be put into the realm of fantasy land. Is the internet now a place where politicians have to find constituents and explain themselves? Undoubtedly yes. Has democracy changed in the sense of populations wanting to feel closer contact with their politicians? Probably yes again and this now means politicians are always campaigning. But are governments now under greater scrutiny and has this been for the better? There is no evidence whatsoever for that kind of statement. The tea-rooms and debating societies of old that discussed the actions of government have simply gone online. ‘He said, she said’ journalism dominates the policy discussions, whilst the real policy discussions are firmly kept behind closed doors. Television and radio did not lead public servants to become television personalities, but instead lead to rules preventing them from using that medium to talk to the public. Did the advent of email lead to ‘sharing information and engaging with citizens to determine better ways of doing things’ ()? Of course not. To expect anything else with the internet is naive in the extreme.

In short, government 2.0 has little to do with google, twitter, kaggle, blogs, facebook, and ‘participatory democracy’. It has to do with hiring more bureaucrats to put the less interesting documents online; tapping into the free lunch of volunteerism; and opening up new markets for the basic products that governments generate. And I expect the first and the last of these to be pursued with much more enthusiasm by the departments than the volunteerism bit.
Does this mean that one shouldn’t expect any increase in participatory democracy due to the web? That is a different matter: interested citizens use the technologies available to try and influence politics and the web opens up new possibilities for them. The web makes it easier to organise people for a common cause and the web also makes it easier to keep tabs on politicians and public services. Perhaps most importantly, the web makes it easier to get expert opinions on almost anything (health, the economy, etc.) which in turn erodes the information advantage of the bureaucracy. There is hence quite a lot of scope for citizens to expand their sphere of influence.
The point about participatory democracy is that it is naive to expect the government and the bureaucracy to be instrumental in more participatory democracy. Greater influence by concerned and knowledgeable citizens has to be earned before it can be acknowledged and taken into account by government. Just like the International Red Cross and Amnesty International had to secure their own power base in the absence of (too much) help from governments, so too will new initiatives have to prove themselves outside of government.
A good example of the impossibility of government to set up its own competitor in the citizen sphere is wikileaks. Undoubtedly, wikileaks is an expansion of the power of the citizenry and an attempt to hold governments more to account. At the moment, it is a force towards greater participatory democracy. But could it ever have been set up by governments? Of course not: it has to wrestle power from governments which are kicking and screaming in protest. If successful , and the jury is still out whether that kind of initiative will take off, then of course governments will start to embrace it and learn to live with it as governments have embraced the Red Cross and Amnesty International.
Hence the web most certainly can influence government, but to expect governments and bureaucracies to be able to organise that process via policies is not realistic.

To see comments on the government’s response to the taskforce’s recommendation see here.

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6 Responses to The economics of government 2.0

  1. Nicholas Gruen says:

    Paul, this is a bit hard to respond to – there’s so many propositions and a fair few of them are pretty surprising.

    Throughout there is almost complete non-engagement with the spirit of what people have been saying. Take for instance your discussion of ‘volunteerism’ as a free lunch. Most of the enthusiasm about it is not because it offers the prospect of getting something for nothing but rather because it increases people’s capacity to do things for themselves. People see that as important – in ways that are not just economic.

    You could write about the way in which patients look stuff up on the internet before seeing their doctors as a ‘free lunch’ – free research assistance for the doctors. But the significance is that it transforms the relationship. Now by ‘transforms’ I don’t mean that it ushers in utopia, or that it necessarily transforms the relationship in some huge way. It may be hugely transformative, or much more modestly so, but it’s transformative because it changes the nature of the relationship, lessening the power imbalance and making the relationship it less one-sided, more accountable and so on. So if you just wrote about this development as a bit of free research assistance, a lot of people would think that you were making a kind of category mistake by missing the really significant thing, crowding it out with the mundane

    Gov2 is like that. Greater levels of volunteerism can be transformative. I’d never hope for much more than mild transformation given that we’re talking about government, and given that we’re talking about life in a vast, peaceful, prosperous society. Things change slowly and often subtly.

    Anyway for me, your whole piece seems like a kind of symphony of misunderstanding.

    You say that public servants try to give themselves more work – this is why they fancy Gov 2. I can only say that one of the main things I heard from public servants, one of their main concerns about blogging was that it was just one more thing they’d need to do and they said we have far more things to do than we can manage and now you’re giving us another one. And if you give us another one, we won’t be properly funded for it (we never are) so we’ll just be further stretched. But if they were acting according to the theory implicit in your piece, they wouldn’t have said any of that. They would have said “please make more work for us – blogging yes, we should be doing it, and tweeting and we should be making sure Wikipedia is up to date” while evilly laughing and stage whispering to colleagues “aha – he’s falling into my little trap, he’ll recommend that we blog more, and tweet more and write and correct encyclopaedic entries and then we’ll have more work to do and larger budgets to fund it – yum yum yum”.

    More practically, it’s difficult to see why it’s so expensive to publish stuff. A lot of this stuff is collected and exists on servers and spreadsheets. The report only calls for it to be stored on a website – if you like on an open folder that anyone can access. I don’t know if any particular funding has been allocated to the costs of this but we did not envisage it costing money. Would it falsify one of the predictions of your theory if no funding had been allocated to the activity, if agencies were supposed to meet the costs of doing this internally?

    Two things you seek to set straight your readers on are these.

    1. The internet has changed the rules of the game of public goods provision. Look at google and twitter, which are global public goods provided by private companies. Government too must become more like google. The fallacy here is to fail to see the actual business model of the googles and twitters of this world. They run on the same business model that radio, television, and newspapers have run on for more than a century: they run on advertising, including ‘sponsored links’. Advertising is rivalrous and excludable, which is why google and twitter can charge for it. The reason that the public goods of the search engine and the social chat-rooms are provided in google and twitter is because they create such enormous traffic that the small bits of the surplus that can be siphoned off are worth enough to produce them. There is nothing new about this phenomenon.

    2. The internet has created a new market for reputations that should be used by government, i.e. people who make their reputation in blog-land should be hired as top civil servants. I am afraid this is wishful thinking.

    These arguments are jumbled. And they don’t seem to show any genuine puzzlement about what is being said in the original arguments. They strike you as surprising and rather than puzzling over them and trying to figure them out to work out what might be valuable in them even if you can’t accept them entirely, you think they’re just rubbish.

    On the first point you seem to bunch together disparate things and then associate them.

    For instance what’s my point about web 2.0 platforms as public goods got to do with the proposition that Governments should be more like Google? They’re pretty completely unrelated points. Even if they sound related I can’t see how they are. You say there’s nothing new about web 2.0 or at least the business model of google and twitter. But firstly google and twitter offer platforms in which others’ content becomes a public good – that’s not usual in media (though you could say there’s a tiny bit of it about – though the main thing I can think of is the letters page and talk back radio which is not the same as the kind of productive asset that is built by collective action on google’s platform. Secondly twitter is actually not supported by advertising – it’s still trying to figure out how to make money. Thirdly Wikipedia and open source software also models of Web 2.0 production of public goods from private endeavour – they’re not funded by advertising. I spend some of my time saying that they’re not new either, but the thing they’re like is not like anything economists normally interest themselves in as a model of valuable production. They’re like the development of language.

    Anyway, I’m not sure what kind of point you are making when you say it’s nothing new. I think you’re saying that it’s not a completely new economic model. Why is that significant. The argument is that these ways of doing things are now more important and that that should be taken into account when thinking about how to configure government.

    And the second point you make is pretty obviously a caricature of what I said in this piece which was a precis of a longer passage in the report:

    In the future Id like to see governments draw volunteer enthusiasts from the community more closely and explicitly into their own activities in policy design and service delivery. And they can go further still. Shouldnt the best volunteer contributors whether theyre correcting text or discussing policy alternatives be afforded greater recognition? Over time we could see if they were interested in being given greater responsibility just as public servants are offered promotions? This could widen the pool of available talent to the public service and provide alternative pathways for recruiting people and developing their skills and authority.

    If those pathways of promotion were built, as structures of authority are built in the world of Web 2.0 they would be based on self-selection, enthusiasm and a record of aptitude and contribution in the field. Firms in the Web 2.0 world are successfully experimenting with means of adapting aspects of this kind of volunteerism to their own organisational structures.

    Thus for instance Google and the Australian global software maker Atlassian allow employees to spend one day a week on projects which are for the firms benefit, but which they are free to choose. Those with a creative idea can work on it and, equally important persuade others to use their own time to collaborate. The process can create many of the organic possibilities and associations typical of the undirected spontaneous activity of markets and civil society. Its certainly created a lot of Googles myriad products.

    Introducing Google time by edict into the public service would probably just reduce productivity. So we recommended a much more incremental approach, proposing that government agencies give their staff opportunities to experiment and improvise with Web 2.0 tools to enhance their agencies work.

    I wonder how long it will be before we get our first head of a government department who first came into the orbit of the public service as an online Web 2.0 volunteer.

    I hope you can see why I feel the way you’ve represented this is pretty crude and misleading. I expected it might come from a shock jock trying to make a joke of it, but I don’t think of myself as proposing that we grab people from the blogosphere and make them top-public servants.

    3. The internet has changed the way science is done in that any clearly defined puzzle can now be opened up to the world community. Examples of this then include companies that run prediction competitions and invite solutions from around the world. The basic thing to note here is that the internet has greatly reduced the search costs of finding people to do work for you. You can hence suddenly find people in Kenya to solve your chess problems or unemployed Russian mathematicians to set up a peer-review system for movies. In essence this is not a departure from normal market economics but a move towards it: over time this will simply lead to a convergence in prices asked for such solution activities. Whilst firms who are first onto this market will find bargains and will be able to get a lot for almost nothing, this is not a viable long-term business model for science and even for most problems. It only works for very well-defined problems with limited cultural idiosyncrasies, and is only cheaper than other channels in the short-run whilst market prices adjust to the lower costs of finding alternative suppliers.

    I agree with the first part of what you’ve said here that there are strict limits on the kinds of problems that can be solved using the new methods. I’m not sure who’s said that this is not like normal markets. So what’s your point? How far reaching the changes are we don’t know, but the changes don’t just match up new buyers and sellers. They create new production possibilities by matching up suppliers and suppliers – it creates vast new possibilities in the collaborations and cross fertilisations that are possible. The extent to which the net will change things neither of us knows – however self-assured we choose to be in expressing our view.

    I agree with much of your fourth point and have said as much in various forums – like this one.

  2. Paul Frijters says:

    Hi Nicholas,

    wow, what a response. Thanks. Let me try and do it some justice.

    – on volunteerism. Sure, people view volunteerism through all kinds of lenses (self-empowerment) whereas I take the economic lense, i.e. what to make of it as an economist.
    – you argue that participating in online information gathering is empowering in the case of doctor-patients. I am not so sure. It will be true for the few who have sufficient prior knowledge to make sense of everything that is online, but I suspect that the main effect of all the online information for patients is that doctors are now inundated by patients who insist they get tests for exceptionally rare diseases. Online information mainly empowers the neurotics with endless examples and terminology. Meanwhile, the essential information difference between patients and medics has really only increased: to be a medical specialist you need some 10 years of specialist training. If 5 minutes online search would really be a useful countervailing effort we wouldnt need the 10 years. Hence I am not convinced the empowerment is all that great. Now, if you could find out if your doctor is a quack then of course that would be worth something but any decent quack will spend a lot of time hiding his tracks.
    – Your whole transformative theme to me smacks of a lot of romanticism. The ability of the population to truly become informed and participating experts on everything because of the online availability of information seems highly exaggerated to me. You may be smart enough, but you are exceptional.
    – Blogging civil servants. My take on this is that more work = more workers. When i say the civil service loves more work, I am not talking about the individual civil servant, but i am talking about department heads and unit leaders who will see this as an opportunity to ask for more resources.
    – The reason that this stuff will be expensive is because the stuff will be vetted, tested, and double checked before it will be put online and open to outside scrutiny and ridicule. The idea that it will be ‘just put online’ seems far-fetched to me given the current culture of secrecy.
    – You say that the web has a lot of free content and is thus different to old news. I disagree. Newspapers also had plenty of people sending letters to them for free, but more fundamentally, the money wasnt made with the public good itself. Hence the basic business model of public good provision is not new, which for me allows for an analogy between what we should expect the effect of the web to be on government with what the effect of those prior platforms was on government.
    – I admit I was partially thinking of the quote you put up above when thinking of whether it is likely that online participants will become prime targets for civil service recruitment (that, plus some online interview which was a bit more specific), but I wasnt just thinking of you.
    – My third point is essentially a translation of what is said about the effect of the internet on science into economic language, i.e. that the ability to pose questions to the world is a move towards reduced search frictions and hence greater price equalisation and lower technological differences. The thing to note is that there previously were all kinds of institutions to minimize the importance of the frictions (research institutes, panels of experts, search intermediaries, etc.). This in turn means that the reduction in search frictions will be less transformative than it might seem in terms of the amount of new thinking being generated.

  3. Nicholas Gruen says:

    Thanks Paul,

    Your first line identifies something that we’ve debated before. You think the ‘economic method’ lens is one which looks at prices and that looking at the empowerment or autonomy of employees is some other lens (psych, sociology or whatever).

    Adam Smith didn’t think that, and the managers of successful firms don’t think that. They know the stuff they’re working with – human beings – is a subtle blend of many things. An ‘economic lens’ for me is the investigation of economic phenomena (which in my book is those things where ‘usefulness’ is important) using whatever methods are best suited to the investigation.

    I know this is old fashioned and that a lot of people define the economic lens as that thing you’re doing when you take out the economists tool-kit and – like Procrustes – start lopping off a few limbs of reality.

    Anyway, just to reprise our earlier discussion – on corporate social responsibility – This is what I said there:

    The kinds of things I’m talking about are much more subtle than you’re allowing for. You run a department – or have. You know that there’s a lot more to people than their ‘self interest’ narrowly conceived. You know that Adam Smith appealed to self-interest – but did so broadly conceived if you read the Theory of Moral Sentiments.

    Bifurcations between interests is good for good crisp thinking about lots of economic questions, and it’s pretty misleading about lots of others where there are subtle mixes of self interest and the maintenance of public goods (like the maintenance of a ‘culture’ whether it be the culture of a school, a firm, a football team or a society.) Coherent, rational activity between human beings whether economic or in some other social domain is always and everywhere a dialectic between self and ‘other’ interest, self and collective good.

    You can bluster all you like but organisations and a huge number of important interactions between people are governed by subtle constellations of interests – narrow self interest, broader more ‘enlightened’ self interest, altruism, desire for belonging and so on. Our conversation here is an example of that.

    And that stuff is important, and I’d argue increasingly so.

    I would argue that it’s almost a complete red herring to think of CSR with some strong bifurcation between altruism and self interest. Obviously a company will impoverish itself and render itself irrelevant to the world if it splurges its profits on altruism that doesn’t pay. But equally obviously some kinds of altruism, some kinds of other regard are unlikely to cost the company much and may generate large social gains – and sufficient of that surplus may then come back to the company as profits (though this is not necessary to justify the original action.)

    The thing is that the way us humangoes got wired up on the African savannah other regarding acts can redound to the benefit of the other regarder in lots of ways – many of which are hard to anticipate! Other regard is kind of how we cut our teeth and learned to fend off the leopards, bring up baby and pass on our selfish, other regarding genes.

    And later

    The thing that attracts me about CSR is that I see a free lunch there. There are things that appeal to people’s ethics that can also work out for their self interest. I think of CSR as of a piece with the breakthrough of Toyota’s production system. In the 1970s the Swedes were saying that you can treat your workers better, but all that autonomy on the shop floor, banishing boredom, or reducing it with multi-skilling will cost you, (If you recall they were experimenting with a team of workers going through the factory and building the whole car). The Germans were saying, you can build better quality cars, but that means more inspectors and that will cost you, and the Americans were saying ‘we can lower the cost of cars by reducing their quality. And Toyota showed that there was a system that tapped into the way people actually were and behaved in teams when managed in a certain way that delivered better workplace satisfaction, higher quality and lower costs.

    There, as here, it was pretty much water off a duck’s back:

    Nick,

    all the examples you drag up just underscore my point. Toyota treating its employees differently to make better cars more cheaply? Well-mart doing something for the common good though not letting it cost more than a ‘drop in the ocean’ (your words)? Trying to engage aboriginal communities in a way something productive can be gotten out of them? Hello? This is not higher morality costing the world. This is by and large either well-understood self-interest or else ‘altruism that doesnt cost too much’.

  4. Paul Frijters says:

    Hi Nick,

    you are certainly right that I see it as the primary job of an economist to ‘follow the money’. Yet, I might surprise you in terms of how blind I am to the altruistic side of humanity inside the family and inside organisations. You simply seem to have a knack of advertising cases of purported altruism that I dont trust. CEO’s who make a 100 times more than their employees and who talk about ‘corporate responsibilities’ (I recall you were paid for a report on that, weren’t you?)? Government ministries in the throws of budget wars worrying about the ‘transformative aspects’ of the internet?

  5. conrad says:

    “Yet, I might surprise you in terms of how blind I am to the altruistic side of humanity inside the family and inside organisations.”

    At least for complex acts of altruism that occur within families, this is the best paper I know of. It’s well worth a look even though it only deals with grandparents.

  6. Nicholas Gruen says:

    Paul,

    Like I said, we’re talking past each other. I don’t think I’m failing to understand what you’re saying. I think you’d agree that what you’re saying is pretty simple.

    I think you’re failing to understand what I’m saying. But maybe it’s the other way round, who knows?

    I’m not advertising cases of ‘purported altruism’. Like I said in what I cited above, “I would argue that it’s almost a complete red herring to think of CSR with some strong bifurcation between altruism and self interest.”

    But you keep coming back to it.

    LE has never written a report on CSR for a filthy rich CEO – but it would be great to get paid to do so. (Keep your eyes peeled and let me know if you spot an opportunity ;)

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