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Group and self-interests coalesce

By Nicholas Gruen - posted Thursday, 30 June 2005


All around the country, people argue about whether we’re better off if the focus is on “self-interest” or on “the community” - where people look out for each other.

Let me tell you something about really successful social and economic systems. They’re always a mix of the two. Dotted throughout our market system - which encourages people to pursue their own self interest - are systems in which groups pursue group interests.

First there’s the social and cultural ground within which markets grow. People in modern societies are essentially peaceable. They have to be to do business with each other. But there’s a huge system of government and law which keeps them that way. Of course some rogues rip people off. But we catch enough and punish enough so that if you were planning a good life for yourself, you wouldn't be too unscrupulous in your dealings. Ask Rodney Adler or the late Rene Rivkin and Christopher Skase and his less-late-wife Pixie who seems to have finally wangled her way out of exile.

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And if you work for a firm, it’s a kind of collective too. You might get bonuses for doing a good job, but chances are you identify with your firm and its fortunes as strongly (well nearly as strongly) as the denizens of Brisbane support the Maroons or the Brisbane Lions.

So long as people can behave collectively in the right context - within firms, within families and in administering the rule of law, as Adam Smith argued centuries ago, self interest and community interests coalesce in a miraculous way. Smith is famous for saying in The Wealth of Nations that in securing our dinner “We address ourselves”, not to the humanity of the butcher and the baker “but to their self-love”.

But his less well-known earlier book, The Theory of Moral Sentiments, explored the importance of sentimental attachments, of people to one another, within families, and communities and nations. That was the great backdrop in which the market’s miraculous “invisible hand” could work.

The closest real world example of the rule of pure self-interest is in the anarchy of the third world’s failed states - not our own commercial societies.

And two miraculous new forms of production have come into their own lately. And guess what? Each is a new play between selfishness and regard for others.

The first is “micro-credit”. Throughout the developed world millions need only the smallest break to work their way out of poverty and oppression. The first micro-credit loan was US$27 to help African women make bamboo furniture.

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The lender was Muhammad Yunus who founded the Grameen Bank. It lends these small amounts to groups of people - particularly women - who all go co-guarantor. People might walk away from a loan to themselves, but these “solidarity groups” radiate not just financial pain but also the social shame of default.

It turns out that “solidarity groups’” default rate is way below our credit card default rates. Group and self-interest coalesce a deft and miraculous new combination.

The other new economic form is Open Source Software.

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About the Author

Dr Nicholas Gruen is CEO of Lateral Economics and Chairman of Peach Refund Mortgage Broker. He is working on a book entitled Reimagining Economic Reform.

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