Branko Milanovic is not alone in his skepticism about whether private morality has a useful role to play in the capitalist system (see The Iron Logic of Gordon Gekko). The logic of the competitive model does indeed seem to suggest that if people can gain by breaking the rules when no one is looking, they will do so, in the process creating competitive pressure for rivals to do likewise.
Not all interactions, however, are zero sum. Because of widespread economies of scale, individuals who can cooperate successfully with one another often compete successfully against others who lack that capacity. But successful cooperation often requires trust, which, as Professor Milanovic obviously recognizes, can be hard to maintain under intense competition.
There are of course many examples of people who behave in the ruthlessly self-interested manner that Professor Milanovic describes. Yet surely he also recognizes the empirical fact that many others refrain from cheating even when the probability of detection is extremely low. Since evolution presumably favored individuals with higher material payoffs, the interesting question is, how did genuinely honest people—those who value doing the right thing for its own sake—manage to survive in competition with others who reaped material gains by merely pretending to be honest?
A possible answer is suggested by this simple thought experiment:
You have returned from a crowded concert to discover that you have lost an envelope containing $10,000 in cash from your coat pocket. (You had just sold your car late that afternoon and had planned to deposit the money the next morning.) Your name and address were written on the front of the envelope. Can you think of anyone, not related to you by blood or marriage, who you feel certain would return your cash if he or she found it?
Most people say they can, usually adding that they have in mind a longtime friend. Since there would be no way to know if the friend had kept cash found under such circumstances, they implicitly recognize that their prediction isn’t based on directly relevant behavioral evidence. Rather, they seem to feel that it’s possible to know people well enough to make informed character judgments about them. If that’s right, and the evidence I survey in the first four chapters of my What Price the Moral High Ground? (Princeton, 2004) suggests that it is, we can see how an honest person might prosper despite passing up opportunities to cheat when no one’s looking. Such a person is extremely valuable in positions that require trust. Few executives would appoint a someone to such a position if they thought that person would fail to return the envelope in question.
For analogous reasons, we can envision a vibrant role within the capitalist system for firms and other organizations that behave in a socially responsible manner even when the threat of external sanctions is extremely weak. The title essay from What Price the Moral High Ground? explores the relationship between a firm’s perceived social responsibility and its ability to recruit and retain highly qualified workers. Most people would prefer to leave the office each day being able to say to themselves that they’d done something valuable for society, or at least that they’d caused no harm. Firms that can credibly offer this amenity to their employees, it turns out, enjoy an incredibly powerful recruiting advantage. It’s probably the most important way that socially responsible firms manage to overcome what would often be the serious cost disadvantages that make Professor Milanovic skeptical about there being a productive role for morality in the capitalist system.
Robert H. Frank is the Henrietta Johnson Louis Professor of Management and a Professor of Economics at the Samuel Curtis Johnson Graduate School of Management at Cornell University. For more than a decade he was a regular Economic View columnist for The New York Times. His most recent book is The Darwin Economy: Liberty, Competition, and the Common Good (Princeton 2011).