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Enlightened Self-Interest September 24, 2008

Posted by Eyal Sivan in Producer.
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Iqbal Quadir had a dream. He wanted to bring economic prosperity and political freedom to the people of his homeland of Bangladesh. He supported no socialist ideology, and represented no charity. He was sure that, given the chance, the people of his country would empower themselves. Quadir started GrameenPhone to give them that chance, and to make a lot of money in the process.

Since declaring independence from Pakistan in 1971, Bangladesh has had to endure one totalitarian regime after another through a string of military coups. Their poor governance led to famines, widespread poverty, gang violence, and political turmoil. Democracy was restored to Bangladesh in 1991. Since then, the country has achieved relative peace, and an annual growth rate of roughly 5% a year.

One of the main reasons for this turnaround is the rise of microcredit, a mechanism to extend very small loans to poor entrepreneurs, an idea which earned Dr. Muhammad Yunus, founder of Grameen Bank, the Nobel Peace Prize. It was the success of microcredit that inspired Iqbal Quadir to apply the same concepts to information and communication technologies, or ICTs. Empowering the underprivileged is possible with ICTs as opposed to other technologies because they are capital light, have low reproduction costs (after initial investment), steadily decrease in price (as per Moore’s Law), and, perhaps most importantly, are easily owned by individuals. With GrameenPhone, Quadir specifically stuck to cellphones because they had the added benefits of being portable and wireless.

His logic was simple. Political and economic misery was largely a result of authoritarian governments, who’s desire to remain in power overshadowed any social concerns, and invited manipulation from powerful elites. ICTs meant more communication, which meant more diversity of opinion and trade, which in turn would promote democratic politics and spur economic activity, in the end creating a larger potential market. The resulting economic development would create an effective force against authoritarianism. He illustrates his philosophy in his 2002 paper, The Bottleneck Is At the Top of the Bottle:

“If concentration of power has contributed to poor governance, the solution must lie in dispersing power… ICTs empower from below while devolving power from above, resulting in a two-pronged attack on abuse of state power that has left so much of the world’s population languishing in poverty… ICTs can be the means to both freedom and development by blindsiding obstacles to both.”

Quadir is not an altruist. To the contrary, GrameenPhone has been criticized for establishing an effective monopoly in Bangladesh, complete with aggressive competitive practices. It has also made Quadir a very rich man. However, in the process, it has helped countless Bangladeshi individuals to empower themselves, to indulge their entrepreneurial spirit, to pull themselves out of poverty by means of their own sheer will.

Let’s take one of GrameenPhone’s products, Village Phone, as an example. Village Phone works as an owner-operated GSM payphone whereby a borrower takes a BDT 12,000 (USD 200) loan from Grameen Bank to subscribe to Grameenphone and is then trained on how to operate it and how to charge others to use it at a profit. As of September 2006, there are 255,000 Village Phones in operation in 55,000 villages around Bangladesh. GrameenPhone makes a profit, the villager (usually women) makes a profit, and the village becomes more competitive, more prosperous and, as a result, more democratic. Quadir gets to have his cake and eat it too.

On the one hand, Quadir is a model of the irrevocable rule which has formed the foundation of modern capitalism: Adam Smith‘s rational self-interest. He has built a successful company based on an ingenious product offered to an unclaimed market, and has reaped the financial rewards. In his infamous 1776 work The Wealth of Nations, Smith argues:

“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.”

Ayn Rand extended the concept of rational self-interest into a complete philosophy known as Objectivism, which emphasizes the individual above all else. In Rand’s view, any conception of a collective was no less than evil, an attempt of the many to free-ride on the achievements of the exceptional few. Her influence was instrumental to the Chicago School, the birthplace of modern economics and alma mater of such well-known economists as Alan Greenspan, George Stigler and Milton Friedman.

Over the last half-century, Rand’s brand of rational self-interest has become a mainstay of global capitalism. Her black-and-white emphasis on individualism has been used to justify even extreme interpretations, such as libertarianism. The story of GrameenPhone is assuredly an example of rational self-interest at work.

On the other hand, that is not the whole story. As sure as he is a capitalist, Quadir is just as clearly fostering the public good. GrameenPhone provides a mechanism for the poorest of a nation to better their circumstances, to build a better life for themselves and their loved ones. This communal benefit was not accidental, it was by design, and provides Quadir with a great deal of personal satisfaction.

Before Adam Smith wrote The Wealth of Nations, he wrote The Theory of Moral Sentiments in 1759. In many ways, the latter offers an antithesis to pure readings of the former, an antithesis that is often ignored. In The Theory of Moral Sentiments he wrote:

“How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it, except the pleasure of seeing it.”

This assumption, that people take voluntary actions intended to help others regardless of personal gain, exists in modern economics. It is usually examined using economic game theory, the most well-known experiment being the Prisoner’s Dilemma. In one test after another, it has been proven that people of all walks of like, from every culture in the world, have a sense of social responsibility and fairness. In a moving segment in The Wisdom of Crowds, James Surowiecki describes an experiment where even capuchin monkeys displayed a sense of fairness:

“The capuchins had been trained to give Brosnan [the primatologist] a granite pebble in exchange for food. The pay, as it were, was a slice of cucumber. The monkeys worked in pairs, and when they were both rewarded with cucumbers, they exchanged rock for food 95% of the time. This idyllic market economy was disrupted, though, when the scientists changed the rules, giving one capuchin a delicious grape as a reward while still giving the other a cucumber slice. Confronted with this injustice, the put-upon capuchins often refused to eat their cucumbers, and 40% of the time stopped trading entirely. Things only got worse when one monkey was given a grape in exchange for doing nothing at all. In that case, the other monkey often tossed away her pebble, and trades took place only 20% of the time.”

Beyond just his capitalist motivations, Quadir is also fulfilling his social motivations. Economic game theorists might refer to Quadir’s actions as pro-social behaviour, specifically what is known as inequality aversion. But even modern game theories usually assume that by helping society, Quadir has to give something up, that he has to exchange one kind of value (material wealth) for another kind of value (positive self-identity). That is simply not the case. He has actually gained both kinds of value and given up neither. More than that, the more material wealth he gains, the more positive self-identity he gains, and vice-versa, creating a positive feedback loop.

Although this scenario is still an uncommon economic model in reality, it is the subject of extensive research. One of the primary goals of game theory is understanding how to create these kinds of win-win scenarios, what are generally called equilibria concepts. The original equilibria concept is the price mechanism, introduced by Smith himself. More modern concepts include Nash equilibriums and Pareto efficiencies, both of which try and arrive at solutions that are optimal for both individuals and society as a whole.

Sociology and socio-economics have another name for what a game theorist might call pro-social behaviour: enlightened self-interest. This term was originally used by Alexis de Tocqueville in his 1835 publication Democracy in America (excerpt available here), with the aim of better explaining the uniqueness of America and its institutions, as compared to the popular philosophical and political notions of his French contemporaries. As a concept, enlightened self-interest was a response to egoism, individualism, and the prohibition of political associations.

The important difference between Rand’s rational self-interest, what some call simple greed, and enlightened self-interest is that the latter acknowledges our social nature. Like the capuchins, we are a social animal who has a some genetic disposition towards fairness and a greater good. This characteristic is not a result of cultural influence, but a result of evolution. Like our primate ancestors, we need a working society in order to survive. As Garret Hardin illustrates in his 1968 article Tragedy of the Commons, purely individualistic self-interest is simply not sustainable.

John Ikerd, Professor Emeritus of Agricultural Economics at the University of Missouri, believes that enlightened self-interest is actually an intricate balance between three separate types of motivations: self-interest, shared-interests, and altruism. He describes the concept in his 1999 paper, Rethinking the Economics of Self-Interests:

“This enlightened self-interest is a product of balance among narrow self-interests, community or shared-interests, and altruistic or other-interests. Enlightened self-interest means that we cannot simply maximize or minimize any one particular aspect or dimension of our lives. We cannot be driven solely by greed, by altruism, or by concern for community. Instead we must pay conscious attention to whether we are adequately meeting our needs as individuals, as members of some larger community or society, and as moral, ethically responsible humans. Quality of life is a consequence of harmony or balance among the three.”

The fact is, we are neither pure individuals, nor are we pure members of a collective. We are not gods and we are not bees. We are both at once. That is the curse and the gift of man, for each one of us to be capable of so much, to be so different from one another, and yet to have those differences mean nothing outside the frame of a greater whole.

Much of the story of civilization is a battle between ideologies that emphasize our individuality versus those that emphasize our role in society. Espousing a narrow view of either extreme is certain destruction.

The key is balance.

 

Comments»

1. m_c1 - October 1, 2008

Excellent post, Eyal!

Ii is telling that French historian Alexis de Tockerville has defined the term “enlightened self-interest” to describe the American democracy. Yet it is exactly the unenlightened selfish greed of few Wall Street executives and apathy of their regulators that had caused the current financial crisis in US. This is indeed a Tragedy of the Commons.

Howard Davis - May 25, 2009

It was the Federal Reserve’s low interest rate policy and the government’s policy of forcing banks to lend to risky borrowers that caused the current financial crises. The factors you mention just compounded their effects.

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3. Eyal Sivan - December 30, 2008

m_c1, thanks.

Ah, the current financial correction/crisis/meltdown. It does certainly seem that the scales have been tipped well in favor of Rand’s rational self-interest for a little too long. With any luck, the architects of our financial systems will use this opportunity to create models that promote a more balanced (and accurate) view of self-interest.

4. bill farren - January 20, 2009

Nice post. There are enough ideas here to keep one busy for a while–possibly a lifetime. It’s amazing what a lopsided view people have of Adam Smith. Too often, sociological considerations (as well as others) are not looked at with much rigor in economic discussions.

5. Eyal Sivan - January 22, 2009

bill, thanks. I too am surprised by how one-sided most references to Adam Smith are, even from intellectual leaders, since he was anything but a purist (unlike say, Rand). This stance is especially strange given economists can surely only benefit from alternative points-of-view.

6. Openworld - May 3, 2009

Coming from the left, I’ve admired Rand over the years because of her respect for free institutions and formal equality in political relationships.

It’s not a great leap to reconcile Rand’s respect for the inviolability of individual rights with an abiding respect for (freely-chosen) acts of generosity.

From a Randian perspective, generosity and even altruism can flow through a simple decision: to widen one’s sphere of caring to include those who share the qualities of spirit that one wishes to see replicated.

Richard Dawkins and E.O. Wilson have noted how “selfish genes” (and selfish memes) can prompt unselfish action by living beings. Their insights may also create an opportunity to understand why living beings take risks even to ensure the survival and reproductive success of (memetically and genetically un-related) others.

If we are to understand these cases of “sacrifice”, it may help to see evolution as a triadic, rather dyadic, process of consilience. We may also be formed to ensure the reproductive success of selfish qualities of spirit, or “lumines.”

When sentient beings who have kindred qualities of spirit (lumines) interact, trust grows and the potential for cooperative endeavors increases across genetic and memetic boundaries.

This may explain remarkable actions of “unselfishness” such as Wikipedia (created by Jimmy Wales, an Ayn Rand admirer) — not far from Marx’s vision of human production after the withering away of the state. It may also account for actions of cross-species generosity and caring, in which acts of sacrifice aim to ensure the survival and reproductive success of admirable qualities of spirit.

I’ve posted some further thoughts on the extended self and emergence of generosity at http://is.gd/wmsP — comments and improvements will be most welcome!

Mark Frazier
Openworld.com and EntrepreneurialSchools.com
@openworld (twitter)

7. Eyal Sivan - May 8, 2009

Mark, thanks for the feedback.

I disagree that Rand would reconcile her philosophy with acts of generosity, freely-chosen or otherwise. In her logic, to be generous means to base your happiness on that of another, which is a major no-no. There is no “sphere-widening” in Rand’s ideal world; everyone is responsible for their own happiness, never that of others.

I had no idea Jimmy Wales was such a devout Objectivist, so thanks for the heads up. I wonder how he reconciles Rand’s philosophy with Wikipedia, in particular the fact that it is donation driven. According to his bio, when once challenged about his Objectivist views, he gave an excellent answer : “that participating in a benevolent effort to share information is somehow destroying your own values makes no sense to me.”

Careful Jimmy. Your generosity is showing.

8. Openworld - May 21, 2009

Eyal,

>>There is no “sphere-widening” in Rand’s ideal world

I see it differently. I think Rand’s life’s deepest purpose — her chosen path to happiness — was to see her philosophical ideas (as well as the meme-like qualities of spirit she cherished) spread to others.

Why else would she publish her nonfiction works, when producing novels and screenplays was far more financially rewarding?

Toward the end of her life, moreover, I recall that she showed sympathy for gift-giving to young people in the holiday season, rather than denouncing such acts as contrary to her philosophy. My guess is that she chose to do so out of a desire to spread a sense that life can be filled with a sense of discovery, unexpected joy, and hope.

Best,

Mark

9. Eyal Sivan - June 4, 2009

Mark,

There is no question that Rand was passionate about spreading her ideas. After all, that passion is the very motivation she advocates in her philosophy, an idea that still carries much weight for me.

Where I have a problem is her need to decry altruistic behavior. This post tries to illustrate that the choice between individualism and collectivism does not have to be an either-or decision. Like you, I am trying to understand where Rand, Marx and E.O. Wilson intersect.

Interesting that her attitude mellowed late in life. Any links?

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