Ceteris is not paribus

(Economists often evoke ceteris paribus — “holding all else equal” — when proposing that an idea from one place can be used elsewhere. They forget that place, people and time matter.)

I start teaching a course on institutional evolution tomorrow.

The main focus is on how institutions (“the rules of the game”) change — or not — over time, either due to outside (exogenous) or inside (endogenous) pressures and actions for change.

Cultural evolution is one such force that can be seen as exogenous or endogenous towards one institution or another. It’s “the secret of our success,” but also hard to direct or control, since it takes place over decades or centuries.

What I find most interesting (and daunting) — in terms of understanding institutional evolution — is how (1) the rich and powerful try to avoid or co-opt institutions, and (2) institutions vary from place to place. Let’s look at these in turn.

(1) The Rich and Powerful

The rich, as F Scott Fitzgerald explained in The Great Gatsby, are different:

“Let me tell you about the very rich. They are different from you and me. They possess and enjoy early, and it does something to them, makes them soft where we are hard, and cynical where we are trustful, in a way that, unless you were born rich, it is very difficult to understand. They think, deep in their hearts, that they are better than we are because we had to discover the compensations and refuges of life for ourselves. Even when they enter deep into our world or sink below us, they still think that they are better than we are. They are different.”

This famous quote covers two important elements: the way the rich grow up different and the way that the rich cynically look after themselves rather than trust others.

These differences are obvious when looking at the commons, since the rich tend to (a) set themselves apart from others when it comes to cooperation and (b) ignore the value of the commons in a world where they can buy whatever they want.  (Here’s a post on these issues.)

These facts mean that the rich are often “defectors” when it comes to the commons, whether they are evading taxes or hiring private guards to protect against public chaos. (The poor — as with this Brazilian example — must cooperate to protect themselves.)

Such anti-social behavior should be condemned by the non-rich, but it’s often accepted — and even applauded — by “poors” who (c) prefer might over right and (d) support the rich because they think — via a Dunning Kruger delusion — that they too will be rich some day. (“Socialism never took root in America because the poor see themselves not as an exploited proletariat but as temporarily embarrassed millionaires” — Ronald Wright, 2004.)

So we get a difficult situation in which the rich take advantage, the poor support them, and civilization decays.

Place to place

It takes effort to create, enforce and obey rules. Everyone tries to avoid such costs, so social norms need to reinforce obligations as well as protect rights because no community can afford to protect rights while ignoring obligations. (Even anarchists depend on reciprocation.)

In tribal and “primitive” societies, the rules are old, well-known and vigorously enforced. Local people can count on those constraints, which makes it easier for them to cooperate in the expectation of reciprocation or act freely in the knowledge of which rules constrain or oblige. Such “culture” allows everyone to get along.

In “modern” societies where anonymity and free-movement makes it hard to build a reputation or avoid cheaters, cooperation and punishment are harder to encourage and enforce (respectively). The rich insulate themselves and the poor cope. Since neither has much faith in collective action, inertia (path dependency) dominates.

So people just leave — like I did for the Netherlands from the US or like others facing a much harder road from poor and failed states like Syria, Venezuela, et al.

It’s not easy to find a place in a new land, people, culture and institutions, but plenty of people take those risks with the hope of reaching “a better place.”

(The Dutch are sharp dealers, and they are hardly as friendly as Italians, but the Dutch can tolerate an individualistic culture on top of their mostly functioning institutions while the Italians need solidarity to deal with their domestic chaos.)

My one-handed conclusion is that it’s important to recognize the blessings and challenges of one’s culture, as well as the choices of “exit, voice or loyalty” when one’s culture is not providing the quality of life you want.

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Author: David Zetland

I'm a political-economist from California who now lives in Amsterdam.

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