Solving social dilemmas: ethics, politics and prosperity by Roger Congleton. New York: Oxford university press. 2022 pp.460, ISBN 9780197642788 (hbk)

The book is divided in three parts. Part I focuses on social dilemmas afflicting private exchanges and how internalized norms of behavior may resolve them, if at all. Part II turns to the coercive powers of governments; it examines social dilemmas that may bedevil democratic governance and how ethical dispositions may ameliorate them. Part III looks at how scholarly thinking has changed through the ages in favor of values which result in economic success. The notions of social dilemmas and internalized rules are the theoretical building blocks of the book. Social dilemmas are outcomes of interactions with payoffs smaller than they could have been, as in coordination games. Four social dilemmas, or negative externalities, are analyzed using one-shot game theoretic models. “Hobbes’ Social Conflict Dilemma” of unproductive conflict; the “Tragedy of the Commons” of the overuse of a shared resource; the “Public Goods Dilemma” of free riding; and the “Coordination Dilemma” of choosing between more than one equilibrium points. Internalized rules are instilled prescriptions that individuals apply when they decide their conduct when dealing with each other. Ethics are a subset of the rules that are internalized and used for ranking alternative actions that can be undertaken in each choice setting in pursuit of the “good”. Some, but not all, ethical systems include rules that broadly support the development of extended market networks, specialization, and innovation.

The analysis of private interactions (Part I) starts with the observation that in the short-run fraudulent suppliers earn large profits but in the long-run such behavior destroys the market. A seller’s internalized norm against telling lies, and /or a feeling of virtue or pride when making only fair and honest offers reduces the likelihood of fraud, which in turn increases the demand for the products of the firm. Expanding firms may gain from economies of scale and scope but also confront agency problems of recruiting, retaining, incentivizing, and monitoring personnel. Agency problems are social dilemmas associated with team production. A work ethic of feeling virtuous when performing all of one’s duties diligently reduces the propensity to shirk. The significance of the work ethic increases when one is assigned tasks that are difficult to monitor. Moreover, internalized ethical dispositions that increase diligence increase the average quality of the products sold and thereby increase the demand for such products.

Nevertheless, developing ethical dispositions is costly. Not only does it require time and effort to internalize ethical principles and rules of conduct, but it may clash with one’s short-run opportunities for a quick and substantial profit. This leads Congleton to treat ethical dispositions like any economic good, that is, with the model of demand and supply. Individuals will invest in moral disposition up to the point where the marginal benefit equals the marginal cost. In the long-run equilibrium, the markets for inputs and outputs as affected by ethical dispositions will be in equilibrium, and so will the market for moral dispositions, given private, social, and economic rewards to those dispositions. That is, all three types of markets clear simultaneously, and firm owners, employees and consumers are satisfied with the choices made to supply, buy and invest in ethical norms of conduct. The upshot is that in the long-run ethical and economic development are codetermined. This is a feedback process where ethical dispositions affect markets and markets affect ethical dispositions.

When ethical dispositions fail to resolve social dilemmas the coercive authority of a government has the potential to enforce the welfare maximizing equilibrium through its tax, expenditure and regulation policies. Inevitably, taxes are extractive thus weakening the incentives to produce, invest and innovate; they may therefore impede growth. Successful government policies require ethical government officials who neither take bribes, nor do they pursue sectorial interests. As a corollary, the more responsibilities the government takes on, the more important is to appoint officials with appropriate moral dispositions.

Part II of the book identifies four “majoritarian dilemmas”: (1) Cyclicity, that is, the inability of majority voting to establish a stable social choice equilibrium. (2) Excessive redistribution by majority voting. (3) The risk of abolishing elections, where a previously democratically elected government takes an authoritarian streak by restricting political rights, and, in the extreme, it refuses to hold the next election for fear of losing power. (4) Voter ignorance and the impact of interest groups, where voters preoccupied with their everyday struggles remain rationally ignorant and even abstain from casting their votes open opportunities for organized interests to swing electoral outcomes that further their interests instead of the interests of voters. Internalized normative dispositions may be able to overcome these problems. Subjective ethical rewards may result in types of voter preferences that preclude intransitivity cycles. Individuals sharing internalized notions of justice may refrain from redistributive tax and spend policies that discourage work and investment. Internalized constitutional norms stipulating that democratic procedures are a necessary feature of the “good” society will block antidemocratic moves to cancel elections or skew the electoral laws to privilege a particular side. When interest groups are organized to pursue broad interests, rather than seeking rents, it is more likely for the government to implement policies that advance shared interest. Congleton strikes a note of optimism that such ethical dispositions remain sufficiently strong to counteract the majoritarian dilemmas.

From the seventeenth century onwards, normative theories positing that lives and societies are “good” when commerce plays a significant role started replacing theories claiming that such lives and societies were “bad.” Moral and positive support for market activities removed older constraints on trade and promoted economic development through infrastructure investments and policies of open international trade. Additional new normative theories supported the formation of governments based on broad suffrage. Such liberal trends were reinforced with institutional designs. Congleton next shows that the prosperous commercial societies that rose in the late nineteenth and early twentieth centuries had adopted versions of a constitutionally constrained king-and-council template of governance (a policy-making architecture developed and explained in his 2011 book, where responsibilities for choosing policies are divided between a single person-king and a committee-council of more-or-less equal members who decide by voting). What is more, with postholders respecting limits to their authority, the success of constitutionally constrained government became less reliant on the ethical behavior of post-holders than otherwise.

Increased moral support for economic and political innovations provided a behavioural explanation for the increased rates at which new products and methods of production were introduced in the nineteenth and twentieth centuries, which generated and supported the industrialised and commercial societies of today.

But where do ethical ideas and rules come from? Congleton recognizes that they are products of experimentation and social evolution transmitted across generations. They are complex, nuanced, and sophisticated, and often a challenge to understand. Inevitably, there has been no unique theory of the “good” life and society. Starting with Aristotle, Part III reviews the writings of philosophers, social scientists, economists, and other thinkers to show that slowly and gradually ethical dispositions changed over time from early reservations (if not outright hostility) about trade and commercial activity to gradual acceptance and embrace. The list of intellectuals reviewed is long and impressive featuring Aristotle, Desiderius Erasmus, Thomas More, Hugo Grotius, Pieter De La Court, William Baxter, Robert Barclay, John Locke, Baron de Montesquieu, Adam Smith, Immanuel Kant, Benjamin Franklin, Claude F. Bastiat, Jeremy Bentham, John Stuart Mill, Herbert Spencer, and Arthur C. Pigou. After discussing their writings, a useful summary Table illustrates their main conclusions regarding the ethical role of commerce in a “good” life and society and their reservations about the pursuit of wealth. Briefly, Aristotle, Erasmus, and More considered farming as noble and viewed trade and commerce as dishonourable activities. A momentous change of attitude took place in a number of steps between 1500 and 1700; it culminated in the seventeenth and eighteenth centuries, the Age of the “Enlightenment”, coming in favor of commerce. Adam Smith’s writings keynoted the end of the Enlightenment and inaugurated liberal economic thinking. “Ethical support for markets deepened and reservation diminished, in part because of a clearer understanding of the effects of competitive markets and in part because of shifts in ethical theories. Prosperity had become a goal worthy of support rather than a temptation to avoid” (p.367). The nineteenth century utilitarians Bentham, Mill, and Spencer “… provided new support for both commerce and democratic governance. Each provided ethical defenses of careers in commerce and commercial systems … Commerce from the utilitarian perspective is … a morally relevant activity because it increases aggregate utility, understood as the sum of the net happiness of all members in a community” (p.400).

The final chapter offers a synopsis and further thoughts. In summary: Ethical dispositions increase both the level and growth of commerce by solving a host of social dilemmas. They do so when individuals invent and internalize rules of conduct. But when ethical dispositions provide only incomplete solutions to social dilemmas, governments present an alternative; however, government policies will succeed only when public officials are ethical, and their policies advance the general interest. Although all societies espouse ethical systems, some systems offer more support for commerce than others.

The book is a remarkable work of scholarship and a pleasure to read. The methodical choice of topics, comprehensive arguments and cohesive synthesis will appeal to the scholarly community. The analytical framework of carefully introducing simple game theory and extensions of the payoff matrices of the games to account for the benefits of virtue and the costs of guilt is an expert exposition that will be appreciated by researchers with an inquiring mind. Those seeking an understanding of the intellectual journey behind the rise of capitalism will find Part III of the book, which to some extent may standalone, a most helpful reading Obviously, in a volume of almost five hundred pages, readers may find some sections more attractive than others, while some readers may be unhappy with the length of some sections, but such complains can only underscore the intellect of the book.

That ideas mattered in the political and economic evolution of the “West” is a central tenet of Congleton’s work. In his previous work on the emergence of Western democracy (Congleton, 2011), he highlighted how shifts in ideology underlie the emergence of representative government. The present volume shows that in parallel to political developments, new ethical dispositions also bolstered an analogous rise in economic activity leading to the industrialized societies of modern times. That some ethical norms reduce transaction costs and henceforth may drive economic development is by now well understood and widely accepted. A most welcomed innovation of the present book is the application of (rigorous but non-technical) game theoretic models to distinguish more carefully and systematically than its predecessors between a multitude of social dilemmas characterising economic transactions, and importantly, political transactions.

Congleton’s thesis subscribes to the school of thought that identifies culture as the fundamental cause of economic development as opposed to geography or institutions (on the latter, see Acemoglu et al. 2005). In the same line Mokyr (2010) argues that an ‘industrial Enlightenment’ (to be distinguished from the philosophical “Enlightenment”) took place first, a scientific revolution, which placed observation and experimentation as the bases of knowledge and changed attitudes in politics, including tolerance for intellectual innovation. In time, this affected the economy by basing technological progress on scientific knowledge which was widely diffused, and changing attitudes in politics, including tolerance for intellectual innovation. McCloskey (2010) also emphasises culture, ‘talk and ideas’ especially liberty and equality.’ For her, neither changes in foreign trade nor domestic investment drove the enrichment of the West. The primary role belonged to a “Bourgeois Revaluation” where the landed elites came to revalue and eventually accept and respect money-making from commercial activities and the rise of the bourgeoisie. Market traders were treated with dignity rather than envy, and inventors were granted the liberty to innovate and profit from their ventures.

To this line of thought it is instructive to add Clark’s (2007) argument on the transmission of cultural values by a biological-cum-demographic chain, which also explains why the Industrial Revolution started in England rather than anywhere else. Specifically, Clark argues that in England the rich have had more surviving children than the poor. The children of the rich who did not inherit family wealth were forced down the social ladder carrying with them the values of the middle class “thrift, prudence, negotiation, and hard work” (p.166), not only because they were instilled at home but (given the political stability going back to at least the thirteenth century) possibly in their genes.

A thorny issue is the endogeneity of culture. Congleton illustrates that in the West ethical dispositions shifted over time to form a set conducive to economic growth. But, as he has also shown, the process is bidirectional: economic success, or lack of it thereof, also shape values that may guide decision making. Discovery of new lands, exploitation of new resources, greater scientific knowledge, technological breakthroughs, production at massive scale, and wider consumer choice also shaped values gradually making western societies more liberal and secular. An extension of the solution to the social dilemmas, one that applies sequential game theory, may be warranted to investigate and capture the full web of interdependencies and feedbacks.

Similarly, ethical dispositions affect and are affected by the institutions, the rules of the game devised by humans that regulate economic activity. It is noteworthy that North 1991:98 writes that institutions “consist of both informal constraints (sanctions, taboos, customs, traditions, and codes of conduct), and formal rules (constitutions, laws, property rights).” Research has shown that the formal institutions that promote economic growth include well-defined and secure property rights, the rule of law, competitive markets, security against state predation and political freedom. Both institutions and cultural values are characterized by increasing returns (decreasing average cost) of decision making. Setting up an institution and internalizing a disposition tend to have large fixed costs, which means it is expensive to change them. As a result, they are path-dependent and tend to change slowly over time (North, 1990). Congleton is explicit on how evolving ethical norms affected the institutional set up that brought the commercial society and gave birth to democracy. Does this mean that formal institutions play no independent role as fundamental causes of growth or democracy? Insofar as deeply embedded values and ideologies of ethical dispositions change slower than formal institutions that apportion political and economic power, one may be inclined to accept the supremacy of culture. This also explains why transplanting formal institutions to places with local cultures and traditions alien to the norms underlying the imported institutions does not ignite economic or political development.

Yet, it sounds extreme to rule out that institutions, which after all provide the incentive structure for producing, consuming, trading, and investing, exercise autonomous influences on economic outcomes. In this respect Acemoglu et al. (2005) offer the example of the 1948 division of the ethnic, linguistic, cultural, geographic, and economic homogenous Korean peninsula into two independent countries, communist North, and capitalist South; thereafter the economy of the former stagnated while that of the latter flourished experiencing one of the fastest ever recorded growth rates. There is an equally loud message from the economy of Ancient Greece. The Greek city-states shared a common cultural heritage. Yet, Sparta and Athens, the paramount powers of the Classical Era (fifth and fourth centuries BCE), differed significantly in their political and economic systems, the former an oligarchy, the latter the birthplace of democracy. Athens became prosperous and although it lost the bitter and destructive Peloponnesian War against Sparta its economy quickly rebounded. Sparta won the war only afterwards to enter a long period of decline. I do not think that we have heard the last word on the interconnection between culture and institutions.