When Selfishness Doesn't Pay Off


The Social Virtues and the Creation of Prosperity

By Francis Fukuyama

Free Press 457pp $25

Francis Fukuyama is not one to shy away from the big issues. In his 1992 book, The End of History and the Last Man, he argued that the cold war's end had allowed the emergence of a global consensus in which liberal democracy and a market economy were seen as the only viable approaches to organizing society. Critics assailed him for brushing aside such issues as militant Islam and ethnic turmoil in the old Soviet bloc. Yet the book clearly helped shape the debate on how the world would evolve after communism's collapse.

Fukuyama, a senior social scientist at Rand Corp., has now come out with Trust: The Social Virtues and the Creation of Prosperity, a kind of sequel to his earlier work. In it, Fukuyama tries to predict what kind of societies will flourish in this new, free-market world. The result is an intriguing work with a number of flaws, including a ponderous style and many hard-to-follow arguments. But this book, like his last, will generate plenty of discussion because it tackles the hot topic of social capital--the idea that a healthy community life is essential to prosperity.

Fukuyama's thesis goes like this: Economists have focused far too much on the idea that the rational, selfish behavior of humans in the marketplace best explains the rise and fall of societies. To get a complete picture of how society works, they should consider such "arational" factors as religion, tradition, and the concepts of honor and loyalty. How a society approaches these parts of communal life dictates how much trust exists among its members.

The higher the level of trust, the more there is of what Fukuyama calls "spontaneous sociability." That's the willingness of a society's members to join organizations--such as sports societies, charitable organizations, new religious groups, mr political clubs--that lie outside the family. Such sociability, in turn, prepares people psychologically for working cooperatively in large, private companies, which Fukuyama says can amass capital and develop key technologies much more efficiently than small, family-run ventures.

Using these schemata, Fukuyama then takes the reader on an exhausting tour of low-trust and high-trust societies. The results include some interesting comparisons. He identifies China, Italy, and France as low-trust societies and puts Germany, the U.S., and Japan in the high-trust category.

Low-trust societies, he says, can produce plenty of successful family-run companies. But they face a struggle moving up to the next rung of economic activity, where much larger, private companies flourish without any need of state subsidies. The reasons for this vary. In China, Confucianism encouraged the organization of society around the family and clan--institutions that Maoist communism failed to destroy. These families tend not to trust nonmembers, thus making larger cooperation impossible. And the flaw can extend to the overseas Chinese as well--just look at the experience of Wang Labora- tories in the U.S., says the author. Company founder An Wang doomed the once-illustrious computer maker by giving huge management responsibility to his unprepared eldest son. Likewise, in poverty-stricken Southern Italy, suspicion of outsiders makes large-scale economic cooperation impossible. (He admits Northern Italy is a different case but still labels the country a low-trust society.) In France, royal absolutism demolished independent associations such as guilds and imposed an intrusive bureaucracy that weakened entrepreneurialism and used the state to prop up ailing corporations.

The connections Fukuyama draws between Germany, the U.S., and Japan are just as clever. In Germany, the persistence of the guild tradition into the 19th century produced quality-conscious workers whom managers could trust. In the U.S., the absence of a state religion allowed Protestant churches to multiply easily by recruiting new members, who acquired the habit of joining all kinds of associations, including corporations. In Japan, the tradition of

iemoto--hierarchical, voluntary associations that pursue activities such as archery or flower-arranging--prepared people for life inside big corporations and the keiretsu.

There are lots more such examples and arguments. Fukuyama also warns that America's other tradition, that of individualism, now poses a threat to sociability. In the U.S., he says, "communities of shared values...have become rarer. And it is these moral communities alone that can generate the kind of social trust that is critical to organizational efficiency."

The above quote illustrates one of Trust's serious flaws: The prose can get mighty dry, even when discussing the urgent matter of a nation's moral health. Another problem is the book's length: Do we really require such a minutely detailed history of the keiretsu or of the ins and outs of German craft-apprenticeship law?

Worse, the book skips lightly over certain key issues. One example: Germany has flourished as a high-trust society. But now, big German employers, fed up with the costs of the German welfare state, are setting up operations in such low-cost countries as China, India, and Poland. That's a major sign of distrust in this high-trust system. Likewise, Japan's yen crisis was created partly because its society distrusts outsiders and promotes unbalanced trade. Fukuyama gives a nod to both predicaments but doesn't really address them. Finally, Fukuyama doesn't really say if low-trust nations can actually turn themselves into high-trust societies. He confines himself to a warning that societies should not dismantle or ignore religion and traditional ethics, which are the wellsprings of social health.

There's plenty to argue over in Fukuyama's book. But he's got the big theme right. Societies need social capital, end of history or no.

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