[Paleopsych] Economist: Economics focus: The evolution of everyday life

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Economics focus: The evolution of everyday life
http://www.economist.com/finance/PrinterFriendly.cfm?Story_ID=3084745
    Aug 12th 2004

    Co-operation has brought the human race a long way in a staggeringly
    short time

    "OUR everyday life is much stranger than we imagine, and rests on
    fragile foundations." This is the intriguing first sentence of a very
    unusual new book about economics, and much else besides: "The Company
    of Strangers", by Paul Seabright, a professor of economics at the
    University of Toulouse. (The book is published by Princeton University
    Press.) Why is everyday life so strange? Because, explains Mr
    Seabright, it is so much at odds with what would have seemed, as
    recently as 10,000 years ago, our evolutionary destiny. It was only
    then that "one of the most aggressive and elusive bandit species in
    the entire animal kingdom" decided to settle down. In no more than the
    blink of an eye, in evolutionary time, these suspicious and untrusting
    creatures, these "shy, murderous apes", developed co-operative
    networks of staggering scope and complexity--networks that rely on
    trust among strangers. When you come to think about it, it was an
    extraordinarily improbable outcome.

    The genetic inheritance of Homo sapiens sapiens, which evolved during
    the 7m years or so that separate us from our last common ancestor with
    chimpanzees and bonobos, equipped man to succeed as a hunter-gatherer.
    Humans co-operated with each other in hunting and fighting, but this
    co-operation occurred within groups of close relatives. Human
    evolution favoured caution and mistrust, so far as strangers were
    concerned. Yet modern man engages in the sharing of tasks and in an
    extremely elaborate division of labour with strangers--that is, with
    genetically unrelated members of his species. Other animals (such as
    bees) divide tasks in a complex way among members of the group, but
    the work is kept within the family. Co-operation of a sort among
    different animal species is also quite common, though not very
    surprising, since members of different species are not generally
    competing with each other for food, still less for sexual partners.
    Elaborate co-operation outside the family, but within the same
    species, is confined to humans.

    The requirements for such co-operation, and hence for modern economic
    life, which is founded on specialisation and an infinitely elaborated
    division of labour, are more demanding than you might suppose. It is
    not enough to say that specialisation and the division of labour yield
    enormous economic benefits. Co-operation would nonetheless quickly
    break down if individuals could enjoy the advantages of division of
    labour without making a contribution of their own. Two traits were
    needed, says Mr Seabright, to bring the fruits of co-operation within
    reach, and evolution had equipped humans with both--accidentally, as
    it were. The first was an intellectual capacity for rational
    calculation. The second, somewhat at odds with the first, was an
    instinct for reciprocity--a tendency to repay kindness with kindness
    and betrayal with revenge, even when rational calculation might seem
    to advise against it.

    Neither of these tendencies could support co-operation without the
    other, and the balance between the two is delicate. Calculation
    without reciprocity often favours cheating: this undermines trust, so
    co-operation either cannot get started or quickly breaks down. On the
    other hand, reciprocity without calculation exposes people to
    exploitation by others. Again, fear of exploitation inhibits
    co-operation. For specialisation and division of labour to get going,
    one needs both instincts, each pushing against the other, so that
    cheating and free-riding are both kept in check. This balance was
    probably needed for the development of social life, Mr Seabright
    notes, even before our ancestors embarked on complex co-operation with
    strangers. Given those dispositions, however, co-operation with
    strangers--and modern economic life--became possible.

    The human capacity for calculation allowed this potential to be fully
    exploited because humans were able to design rules and institutions
    that, as Mr Seabright puts it, "make reciprocity go a long way". Much
    of the book is concerned with the trust-enhancing character of
    economic institutions such as money. Building on humans' inherited
    instincts, these rules and institutions allow people to treat
    strangers as "honorary friends".

    Adam Smith, meet Charles Darwin

    The fact that things could have turned out so differently makes the
    modern global economy, with all its awesome productivity, seem even
    more miraculous. But, having convinced readers on that point, "The
    Company of Strangers" dispels any complacency by drawing attention to
    less appealing aspects of the human enterprise. One such is pollution.
    Markets can be harnessed to provide information about how best to deal
    with pollution and other externalities--the phenomenal
    information-processing power of the price mechanism is another
    unintended (and marvellous) consequence of extended economic
    co-operation. But sometimes markets cannot co-ordinate activities
    effectively. That, after all, is why firms exist: in some cases (and
    the book considers the conditions under which this is true),
    information can be more usefully processed in-house, in a non-market
    setting. This is a different kind of co-operation.

    And co-operation itself is two-edged--because it also makes possible
    the most successful acts of aggression between one group and another.
    "Like chimpanzees, though with more deadly refinement, human beings
    are distinguished by their ability to harness the virtues of altruism
    and solidarity, and the skills of rational reflection, to the end of
    making brutal and efficient warfare against rival groups." This is
    what makes our everyday life fragile, as well as surprising. Curbing
    this tendency for conflict, Mr Seabright argues, requires, among other
    things, better-designed international rules and institutions, so that
    nations, no less than individuals, can regard each other as honorary
    friends. "Trust between groups needs as much human ingenuity as trust
    between individuals."