by Annette PELKMANS
For two years now, I have been working on an action research project that studies inclusive business models in agricultural value chains and the process of their transformation. In the cases we study, we see inclusive markets, or economic relationships emerge where there was once an immense void. This void is due to the failure of markets, institutions and governance, leading to extreme poverty (especially in the rural areas, and in the agricultural sector in the Philippines), massive destruction of the environment (especially among indigenous communities where the only source of livelihood is logging), and even armed conflict. It is a textbook illustration of how an economic system fails. And yet, there we are — studying alternative narratives of how inclusive, humane and efficient markets could emerge. So, in addressing the question of how we can reform the capitalist system, I am greatly helped in imagining a possible trajectory through the several stories of hope, I have encountered in my research work.
Let me then tell you in brief one such story and expound a vision of our human nature that emerges from it, and from there, try to imagine an alternative path to reforming capitalism.
The story is that of La Frutera, a plantation exporting cavendish bananas, located in what was previously one of the rebel camps of the Moro Islamic Liberation Front (MILF). As many of you would know, a civil war has been raging in Mindanao, the south of the Philippines for more than half a century. It is obvious that the first casualty of war is trust and markets cannot operate in the absence of trust. War creates profound market failures because no form of cooperation is enforceable in a situation where trust cannot flourish. Certainly not long-run investments as they require stable relationships that would allow long-run planning and flexibility to address unforeseen challenges.
So, the great puzzle is why John Perrine, the CEO of Unifrutti-Philippines in 1996, together with his foreign partners agreed to invest US$27 million dollars in La Frutera under the circumstances of war. The common vision that he was able to build together with Datu Toto Paglas, leader of the Muslim community, is no less extraordinary. They see themselves as a “God-centered organization, united as One Family”, aiming to uphold values of Love, Truthfulness, Trustworthiness, Discipline and Perseverance, committed to improve the quality of life of their brother Muslims, Indigenous Peoples and Christians, and striving to preserve and restore the environment. These are not just loose words, and perhaps the best proof of its authenticity, is the fact that in the 26 years of the existence of Unifrutti, it has not once experienced any violent attack or sabotage, unlike other companies in the plantation sector, who have suffered immense loss of property and even lives.
What is striking with the Unifrutti and La Frutera story, is that the company did not start out as virtuous, but it became so in the course of building relationships that cut through the religious and cultural divide. The La Frutera experience, affords us the opportunity to see and understand the social and relational dimension of markets of the economic system, the dimension which standard economic analysis suppresses with its heavy emphasis on self-interest as the driver of an efficient market economy.
During the same period that Adam Smith and other economic philosophers laid the foundations of the economic system as we now know, there were other voices, such as that of Antonio Genovesi, an Italian philosopher, who instead saw economic exchange as an act of reciprocal assistance, or a means to help each other to satisfy our needs. He saw man as driven by two equally strong passions: one is the love for species and the other is the love for self. Our passion for self makes us dependent on the other’s sociality, while our love for species, our love for each other makes us identify with each other’s needs and interests, thereby ensuring an economic system wherein our self-interests are all served. In the view of Adam Smith, instead, it is the invisible hand of markets that transforms all our individual acts of selfishness into a socially desirable state of well-being. We reach the common good through the dynamics of the markets propelled by self-interest rather than through the social motive, which seems to be the more direct way to arrive to the common good.
I think the core idea missed by Adam Smith and his colleagues, is the fundamental duality of man’s passions and motives. Being moved by a social intent does not imply philanthropy, nor does the self-love motive imply total egocentricity. Ian Macneil (a well-known American legal scholar) and pioneer of relational contract theory in law, spoke about human nature as being completely social and completely selfish at the same time. How is this possible? How could one put the interest of the other ahead of one’s own, and at the same time put one’s interest ahead of the other? It is possible among social creatures governed by the fundamental laws of reciprocity and solidarity. From this viewpoint, an economic exchange is a social but not an altruistic act, because it is conditioned on the confidence that the will to be useful to the other is reciprocal. This practice of trust is not the same as ‘you scratch my back and I scratch yours’, but as Bruni & Sugden (1998) have said, motivated by the realization that one’s action is “my part of an action by us which has good consequences for us.” Moreover, as Macneil, explained, “solidarity is a belief in being able to depend on another and permits the projection of reciprocity through time.” I take your problem as mine, even if I am not affected by it now, with the assurance that in the future I will be the one in difficulty, and it will be your turn to come to my aid.
But how realistic is this view? Can we really imagine man to act socially when the opportunity to enrich, or advantage himself at the expense of another presents itself? A well-known research by Joseph Henrich and his colleagues published in the American Economic Review in 2001, says ‘yes’. They studied 15 small scale societies throughout the world to test whether or not the predictions set out by game theory based on the canonical self-interest model would prevail. To everyone’s surprise, the results of all these experiments were contrary to the expectations of standard economic models. Individuals behave more socially than expected, and the more commercial a society is, the higher is the level of social generosity.
These results are not at all surprising if we accept the fundamental idea of man as a social being. In fact, there is no way we can explain the behaviour of other social animals, such as haplodiploids like bees and ants, if we don’t accept the motive driven by love for one’s species. The strongest in a pack of wolves puts himself at the most vulnerable position, so that if a predator attacks, he can run in a different direction to be chased, thus offering himself for the safety of the pack. Darwin, himself, spoke of the notion of group selection. He argued that the group that is able to act as a collective has a much higher chance of survival compared to groups populated by purely selfish members. We love stories of heroes, because having heroes in our midst increase our chances of survival. Man is social because his own survival and that of his own species depends on that sociality. And Nature endows social relationships with intrinsic value in order to ensure that traits so crucial for survival could be nurtured.
Going back to the story of Unifrutti and La Frutera, studying their long history showed that they did not emerge as environmentally responsible, or good for their workers, overnight. At the very beginning, all there was, was the decision to enter into a relationship of trust, based on each one’s individual commitment to their God. There are many ways to turn walls of mistrust to doors that open up to relationships of trust. It could be through the eyes and the sensitivity of faith; it could be through an awareness of our common humanity. When relationships lead to dialogue, they transform mindsets and behaviours and further deepen trust. And through the course of time, this trust lead to practices and engagements that are more just and inclusive. There are numerous examples of this in the Unifrutti story, but time is too limited to even mention a few.
So lastly, let me turn to the task of imagining which paths we can take to reform our broken capitalist system. One path is based on the assumption that there is, in fact, nothing broken about capitalism; the problem instead is that we have not yet perfected it. After every other major crisis, the debate turns to whether we have not imposed too much regulation and too big a government, or too much market liberalization, and too small a government. It seems that the key is to stop the pendulum from swinging towards too much rules, or to too much discretion, because each time our system swings from one extreme to the other, opportunism rears its ugly head. The art is therefore to reach that fragile balance where market incentives freely drives us to produce and buy, and where governments smartly throttle our individual inclination to seek every loophole, every tax haven, every un-regulated policy space to exploit our environment and advance our own self-interests. But that balance is indeed fragile, and in the global sphere, totally absent. When market failures, institutional failures, coordination failures, prevail, our common pursuit of self-interest drives us to actions that ever more increase poverty, inequalities and environmental decay. For decades, our world leaders have embarked on a fragmented approach to solving these failures: a combination of market liberalisation, free trade, with some form of global standards, and international sanctions to address market failures; promotion of good institutions or even regime changes to solve institutional failures; and creation of global governance bodies, endless negotiations of comprehensive partnerships to deal with coordination failures. I think it is safe to say that these fragmented approaches are not working, especially when it comes to saving our global environment, and addressing the ever-widening gap between the rich and poor; with the world’s richest 1% reaping 82% of global wealth generated in 2018 (Oxfam, 2018).
Let me now imagine another path that will bring us to a new economic system. It starts from widening and deepening our circles of trust and solidarity. It is not that these examples of sociality are lacking. The problem is that our circles of trust are too small and exclusive. We can trust our own family, and we identify fully with their needs, and our generosity is often bottomless. We could even have a national identity and trust our own countrymen and leaders, at least enough to pay our taxes, protect our immediate environment, and care for the poor around us. But solidarity often stops at our national borders. In cases wherein we cannot even trust our own people and government, then solidarity does not even go beyond the walls of our own homes. A change as fundamental as changing the economic system cannot happen without a fundamental change of hearts and minds. The fact that as humans we are completely social as we are completely selfish, means that we must build trust to the point that it becomes a culture. Otherwise, there will be no reciprocity, and solidarity will break down. Within our communities, within our factories, in schools, hospitals, government offices, every space of encounter should be transformed into circles of trust, reciprocity and solidarity. It would certainly take time for relationships to grow and mature, and there will be numerous moments, sometimes even in the course of a single day, to practice forgiveness as well as patience. But this is how we build trust; this is how we build our social capital. And like any investment, this, too will entail some risks.
And we have enough reasons to hope. Our youth are becoming more global than ever. They will be the generation that will transform empathy into real change if they can draw deep into that innate generosity and open up to the awareness that we are one human race, living in one single planet, depending on nature and on each other for our common survival.
Social empathy is in our DNA as a human race. We have an intrinsic compulsion towards solidarity and social love. Our economic system fails us because it fails to recognize and trust this fundamental truth.