270 – Violence and economics 2

Last time I talked about the way that economic trade has contributed to reductions in certain types of violence. Another economics-related influence was the establishment of powerful centralised governments, which claimed a monopoly in the rights to apply violence within the community. The links to economics are various.

Steven Pinker (2011) refers to this influence on violence as “The Leviathan”, meaning a state that claims a monopoly on violent force and uses that monopoly to protect its citizens from each other.

This reminded me of the economic concept of a natural monopoly – a situation where a monopoly can deliver an outcome more efficiently and cheaply than can multiple players in a competitive market. Normally this is thought to apply to services like trains, roads or domestic water, but the discerning use of violent force to reduce general violence does seem like a good candidate for a natural monopoly. Imagine what would happen if there was more than one provider of this “service”!

violence1The Leviathan idea also relates to the economic theory of public goods, which have either or both of two characteristics: the provider cannot exclude people from benefiting from the goods in question (and so cannot charge a voluntary fee in exchange for their consumption) and/or consumption of the good by one person does not diminish its availability to other people (see PD22). Violence-reduction services would have both of these characteristics, and so economists would consider them to be prime candidates for being provided by a centralised government, rather than by multiple firms in a free market.

Next, there would be positive externalities (PD35) resulting from individual decisions not to apply violence to others in their community. A positive externality is where somebody gets a spill-over benefit from someone else’s activities. Pinker showed that the violence-reduction benefits of a benevolent central government diffuse throughout the society. One way is through growth of culture and technology, as people have more time and resources to devote to these things rather than to self-defence. Fostering of positive externalities is another classic economists’ rationale for government getting involved in an issue, rather than leaving it to solely to the market.

We heard about the violence-reducing benefits of trade (PD269), but this too depends on a strong centralised government to provide the conditions and institutions for trade to occur. A benevolent Leviathan helps us all by defining and enforcing property rights, providing the rule of law, creating a system of contracts, and punishing violators of these systems. Without these things, trading would be much more expensive and therefore less common. In other words, the strong centralised government, by providing these systems and institutions, reduces our “transaction costs” (see PD192), making trade practically possible. Transaction costs have been a growing area of study in economics, recognised with recent Nobel prizes.

One of the mechanisms for reducing transaction costs is increasing trust. It’s easy to see how the systems and institutions put in place by a benevolent Leviathan would lead to increased trust between people. Social scientists, including economists, have studied trust as a key element of “social capital” (see PD170), looking at how it contributes to making economies and societies work effectively, for the benefit of all.

So there are at least three or four ways that economic theories can add richness to Pinker’s Leviathan idea.

Overall, it is striking how many connections there are between economics and the long-term reduction in violence outlined by Pinker. He doesn’t talk about these connections (apart from the “gentle commerce” one), but it seems there could be scope to explore them further.

Further reading

Pinker, S. (2011) The Better Angels of Our Nature: The Decline of Violence in History and its Causes, Allen Lane, Penguin, London.

269 – Violence and economics 1

There is clear evidence that violence within and between human societies has decreased dramatically through the course of human history. What are the links between economics and this most-welcome development?

I remember thinking that I was very lucky when I was about 11 or 12 years old, because I felt that the world was on a pathway to improvement. I was glad to be living now, rather than earlier in history, because medicine and technology were clearly advancing, but also because I felt that people were generally getting better – kinder, more inclined to offer international aid, more opposed to war.

The idea that people are getting better might seem like childish wishful thinking, but it turns out there was something to it. So says Steven Pinker in his extraordinary 2011 book, The Better Angels of Our Nature: The Decline of Violence in History and its Causes.

Pinker was already one of my favourite authors (How The Mind Works is wonderful), but this book is really special. I can’t recommend it highly enough. It is enthralling, surprising, entertaining and even inspiring, over the course of a weighty but highly readable 800 pages.

Reductions in violence have been documented on every time scale, from millennia to recent decades. Pinker documents how every form of violence you can imagine has declined: murder, violent punishments, torture, mutilation, slavery, rape, genocide, war and more. Beneficiaries have included women, children, family members, neighbours, strangers, homosexuals, prisoners, slaves, animals … everybody, really.

violence3As Pinker observes, “It is easy to forget how dangerous life used to be, how deeply brutality was woven into the fabric of daily existence”. The good old days were, in fact, shockingly violent.

The declines in violence have been huge in magnitude. Acts of violence that we would consider unthinkable were once commonplace and unremarkable. To quote a few of the many statistics provided, in pre-state societies, around 15% of people were killed by other people; in early city states this had dropped to 5%; and the current value in Europe is around 0.001% per year.

Many different factors have contributed to this outcome, some rather surprising. I was interested that some of the reasons identified by Pinker relate directly to economics.

He argues that one of the biggest contributing factors has been “gentle commerce” – voluntary trade between willing buyers and sellers. If your way of acquiring goods is take them from your neighbours by force, then the system is a zero-sum game, meaning that there is a fixed amount of good stuff available, and if someone gets more of it, someone else must get less. If in the course of taking your neighbours’ goods you also kill them, the system is very much a negative-sum game. But if you trade, it becomes a positive sum game, with everybody better off.

The gains from trade make it more likely that people will choose to leave their neighbours alone to produce good stuff for trade, rather than choosing to raid and perhaps kill them.

Trade brings you into direct contact with a broader range of people, and you can learn that they are not the ogres you’ve been led to believe. The process of negotiating particular trades encourages each player to take the other’s perspective. It may lead to respectful consideration of the other’s interests, if only because it becomes in your interest to do so.

This virtuous spin-off from trade, including from “globalisation”, is something that very few people seem to be aware of. No doubt there are some negative aspects of globalisation, but this perspective on violence adds a huge positive to the more obvious positive of increasing general prosperity.

The evidence for reduced violence resulting from trade is strong. For example, statistics show that countries that trade with each other are much less likely to go to war. Countries that have relatively high levels of trade have experienced less genocide and less civil war.

Interestingly, it appears that increased wealth per se (which would result from the trade) may not be the main factor driving reductions in violence. Pinker shows that the evidence about the effect of wealth is mixed; its correlation with violence tends to be low. For example, the number of lynchings in southern US states declined exponentially in the first half of the 20th century, without deviations downwards for the roaring 20s or upwards for the depressed 30s.

So if it’s not wealth, it must be the act of trading itself. That’s a remarkable and important insight. Given that trade has this unintended positive consequence that benefits us all so much, it’s ironic that some people see commerce and trade as undesirable, or even immoral.

Further reading

Pinker, S. (2011) The Better Angels of Our Nature: The Decline of Violence in History and its Causes, Allen Lane, Penguin, London.