A sideways look at economics
A cleaner wrasse is brave little fish that can be found picking off parasites from larger fish. Often from their mouths. And often from fish that would otherwise eat them. This is a good deal for both fish: the cleaner gets a meal and the bigger fish, or ‘client’, gets a clean. But why doesn’t the client just close its mouth (with the cleaner still inside) once the cleaning service is nearing its completion? This question that has puzzled evolutionary biologists (and economists, too, it turns out).
Of course, if the service providers (wrasse) knew they would get eaten once they had provided their service, they wouldn’t provide the service in the first place. But if there were no other fish looking, why not just eat the wrasse? There are plenty of other cleaner wrasse in the sea. But if all clients did this there would be no wrasse left. The few survivors would eventually cop on and stop providing their services.
Evolutionary biologists struggle to explain this symbiotic relationship. How did wrasse end up providing dental services in the mouths of fish that would normally eat them? Turns out it’s not just cleaner wrasse and their clients. Pilot fish and shrimp provide similar services to sharks and groupers. It’s almost like a grand bargain has been struck by fish to avoid short-term temptation for the greater good. But fish don’t sign grand bargains. They are fish. That’s ridiculous. Even crocodiles have been known to let birds clean their mouths. (Although it seems that crocodiles have been known to occasionally break the agreement.) Grand bargain or no grand bargain, the fact is they do what they do, which makes economists like me wonder why humans find it so hard to do it.
I’m talking about human efforts to tackle climate change. Most people want to avoid a life-threatening rise in global temperatures, but there is less willingness to make the changes necessary to achieve that. Yes, there is an intertemporal problem, but self-interest, mistrust and greed make it hard to achieve an agreement or a situation where people, companies or countries resist the urge to renege on their commitments when nobody else is looking. I want everyone else to cut their emissions, but I’d rather not do so myself, thank you very much! If every grouper, or the shark took the same attitude, all groupers and sharks would lose out. In fact, research has shown that entire reefs suffer badly, when cleaner wrasse are not around.
We all know that humans acting in their self-interest is one of the key pillars of economic and business theory. Rightly so, even if I do feel that this is often too blunt an assumption and wrongly understood. While economists often equate profit maximisation or money with utility, seeing and making other people happy does, in fact, provide utility to many, for no ‘rational’ reason other than they like to see it. After all, even Adam Smith, the godfather of the idea that self-interest is good for the economy, said this in his book The Theory of Moral Sentiments, written in the 18th century:
“How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortunes of others, and render their happiness necessary to him, though he derives nothing from it, except the pleasure of seeing it. Of this kind is pity or compassion, the emotion we feel for the misery of others, when we either see it, or are made to conceive it in a very lively manner. That we often derive sorrow from the sorrows of others, is a matter of fact too obvious to require any instances to prove it; for this sentiment, like all the other original passions of human nature, is by no means confined to the virtuous or the humane, though they perhaps may feel it with the most exquisite sensibility. The greatest ruffian, the most hardened violator of the laws of society, is not altogether without it.”
It is often suggested that one reason we are selfish is due to our animal instincts. Keynes wrote about animal spirits in his seminal work, The General Theory of Employment, Interest and Money in 1936, describing them as “a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities.” In their post-mortem of the 2008 financial crisis, George Akerlof and Robert Shiller talk about animal spirits too, saying that governments should “countervail the excesses that occur because of our animal spirits”. I respect Keynes, Akerlof and Shiller greatly as economists, but I think it is a bit harsh to blame our less desirable behaviour on animals and their spirits.
I think the economics and business professions seem to be belatedly waking up to the realisation that a narrow focus on self-interest is not in the best interest of society and that a broader consideration of issues ought to be considered too. After all, we are social beings and do gain utility from the wellbeing of others. Keynes was ahead of his time in articulating that self-interest, even enlightened self-interest, is not enough, and can sometimes lead to bad equilibria. It’s not that Adam Smith is wrong. More that his words on self-interest need to be put into the context of the modern global economy and we ought to focus on some of the other things he said.
Enter ESG investing. Easier said than done, though. People disagree — always have and always will — on what it is to be good, or right. The E part should be relatively simple: i.e. no more emissions after 2050 and halving emissions by 2030. But even here, there are complexities, like the speed at which different sectors should be reducing their emissions. (For more information on this issue and how we can help, get in touch or visit the climate economics section of our website.) Don’t even get me started on the S and the G. It’s not that ESG is a bad idea, it’s just that these are complex issues, harder to measure and don’t lend themselves easily to nice, simple numbers.
The bottom line is we’ve got our issues just like fish do. And if it’s distressing to you that fish are doing a better job at sorting out their issues than we are, you can always reassure yourself that fish have been known to break the rules sometimes too. Surprisingly, it’s not the sharks or groupers, but the little cleaners themselves. It turns out that some fish are selfish after all, but as the link reveals, the cleaner wrasse have some rules and a system to punish those who step out of line. And shout out to the clients too, who demonstrate admirable self-restraint by not just eating the misbehaving cleaner. At the end of the day, if different species of fish can organise themselves efficiently using a combination of economic principles, self-restraint and altruism for the greater good, then surely humans can too.