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The Penguin and the Leviathan: The Triumph of Cooperation Over Self-Interest

Here’s a quit extensive synthesis of  “The Penguin and the Leviathan,” in my opinion a wonderful book for anyone who is interested in improving and transforming our economic and political institutions.

 

Human motivation is a subject that ‘makes me tick’. I really enjoyed reading “The Penguin and the Leviathan”, not only because it paints a much nicer picture of “human nature” than the one used by the free marketeers, but also because it gives a glimpse of a future, higher form of society that will be much more based on human cooperation. I think it is important to see that the seeds of this future society are very much present today.

 

Benkler gives a lot of examples, going from Southwest Airlines and Toyota’s shop floor processes to Chicago’s community policing program, Wikipedia and Linux. These are all systems that have relied on human cooperation rather than purely on incentive compensation, punishment or hierarchical control.  The political and ‘macro-economic’ implications are not the subject of this book, although I think they confirm in a sense ‘old’ ideas of workers control and management, but seen through a 21st century lens.  I am planning a shorter version of this synthesis, but think that the ‘extended version’ deserves to be published.

 

The Penguin and the Leviathan – How Cooperation Triumphs Over Self-Interest

 

Statements on human nature are always a bit tricky because of the complexity of the subject matter. This does not prevent the obvious fat that the capitalist system operates according to a very one-sided and unflattering view of human nature. As a result, our most deeply entrenched social structures, our top-down business models, our punitive legal systems, our market-based approaches to everything from education reform to environmental regulation, have been build on the premise that humans are driven only by self-interest, programmed to respond only to the invisible hand of the free markets.

 

In “The Penguin and the Leviathan”, Yochai Benkler, Professor of Entrepreneurial Legal Studies at Harvard University, explains that “in the last decade this fallacy has finally begin to unravel as numerous studies across dozens of cultures have found that most people will act far more cooperatively than previously believed. He draws on cutting-edge findings from neuro-science, economics, sociology, evolutionary biology, political science, and a wealth of real-world examples to debunk this long-hold myth and reveal how we can harness the power of human cooperation to improve business processes, design smarter technology, reform our economic systems, maximize volunteer contributions to science, reduce crime, improve the efficacy of civic movements, and more.”

 

The first part of the title of the book needs a little bit explaining. ‘Leviathan’ is the title of Thomas Hobbes’s classic philosophical work defending the assumption that humans are fundamentally and universally selfish, and the only way to deal with people is for governments to step in and control us so that we do not destroy one another. Adam Smith had an alternative solution to this selfishness, expressed by his famous ‘Invisible Hand’. Smith argued that in our pursuit of self-interest, we would work to fulfil one another’s needs through the mechanisms of the free market, because it is mutually advantage to do so. In other words, perusing one’s self-interest is also serving the common good.

 

The philosophical answer to these assumptions was first given by Jean-Jacques Rousseau, and later by David Hume, the ‘young Marx’ and anarchist thinkers like Peter Kropotkin. Their far more flattering view sees human beings as fundamentally capable of empathy, of possessing sentiments that compel us to act morally, cooperatively, or generously, this not only in our self-interest. Hence Benkler’s “Penguin”, in honour of Tux, the symbol of the free open source computer operating system Linux.

 

A Vicious Circle

 

According to Benkler, the long reign of Smith’s Invisible Hand, despite the frequent panics and crashes throughout the nineteenth century, came abruptly to an end with the crash of 1929 followed by the Great Depression: “Leviathan reared its ugly head with a viciousness unmatched before or since, in the form of fascism and Soviet communism. In the United States, Britain and other liberal democracies, Leviathan took more benevolent forms: the burgeoning welfare state and the rise of government bureaucracies.” But by 1980s the pendulum was in full swing back toward laisser-faire capitalism, with the Reagan and Thatcher governments in the USA and the UK, and the rise of the free-trade-focused European Union. The drive to weaken the state and make way for self-interest in the market reached new peaks under George W. Bush, and ended predictably in a new crisis. “If neither the command control systems dictated by the Leviathan, nor the Invisible   Hand of the free market can effectively govern society, where shall we turn?” asks Benkler. He believes the Penguin can do the job, by delivering more robust working social and economic systems that break us out of this vicious circle.

 

In the first six decades of the twentieth century most systems were large, hierarchical and controlled. This trend began in companies and management practices based on Taylorism: every action by every worker was described, timed, measured and monitored to assure the most efficient operation. Henry Ford, embedded this basic concept in the assembly line, reducing workers to living robots within a highly hierarchical system. This top-down hierarchy expanded to the public realm and by the mid sixties organization of hierarchies had come to dominate modern economic and social life. But the intellectual debate (and to some extent the practice) of next forty years saw a shift away from centralised systems and towards markets and market-mimicking approaches. This was to a great extent instigated by the inability of control-based systems to manage an increasingly complex and interconnected economy and society. More market driven solutions (and the come-back of the selfish model of humanity) seemed not to require such close monitoring and control, but ended also in disaster.

 

In the last decade however, a series of shifts in the business world flew clearly in the face of the theory of universal selfishness. New organizational models developed built around the assumption that, given the right conditions, people would opt to cooperate and collaborate to serve the collective good of the organisation – of their own free will. The rise of peer-production on the Internet, from free and open software, to Wikipedia, to collaborative citizen journalism, to social networks like Facebook and Twitter… produced a culture of cooperation that was widely thought impossible five or ten years ago. These changes did not happen in the fringes of society, but arose in places like Silicon Valley, that represents the cutting edge of our social and economic trends. Traditional business like IBM (but also Procter & Gamble, Boeing…) and new ones like Google, Red Hat or Craigslist, had the technology to experiment with these new models and in turn und new ways of being profitable by engaging people, rather than controlling them.

 

A New Vision on Human Nature

 

Through the work of hundreds of scientists, we have began to see mounting evidence in psychology, organizational sociology, political science, experimental economics, and elsewhere that people are in fact more cooperative and selfless, or at least far less selfishly, than most economists and others previously assumed. Even in the study of human biology, evolutionary biologists and psychologist are now finding neural and possible genetic evidence of a human predisposition to cooperate. These findings confirms the assumption of people like Noam Chomsky, who in an interview on human nature by Kate Soper in 1998 stated: “In whatever environment (a child) finds itself, (it) will mentally construct a rich and complex culture on the basis of the extremely scattered and limited phenomena it is exposed to. That consideration tells us (in advance of any detailed knowledge) that there must be an extraordinary directive and organizational component to the mind that is internal. We can begin to see human nature in terms of certain capacities to develop certain mental traits.”

 

Out of hundreds of studies, in any given experiment, Benkler claims, a large minority of people (about 30 percent) behave as though they really are selfish, as the mainstream commonly assumes. But fully half of all people systematically, significantly, and predictably behave cooperatively. For our day-to-day life, this means that our existing social and economic systems are often designed with the wrong model of who we are and why we do what we do. To motivate people, we need systems that rely on engagement, communication, and a sense of common purpose and identity. Personally I think this is not only true at a micro level (organisations and institutions), but at a macro level (including political involvement) as well.

 

All this does not mean that we are all saints. The assumption that humans are fundamentally selfish is persistent because, well, it is partially correct. We can recognize ourselves in the story of selfishness, but often fail to take into account all the times we have acted selflessly, and all the times we have been the beneficiaries of generosity from others. So, how do we explain our apparent innate sense of empathy, fairness, or doing the right thing? One answer is that we are moral beings, driven to follow our own social code as well as our society’s moral code. We are also social beings. Often we follow our cultural mores and norms because it gives us a sense of identity or solidarity with the group or community or nation. Third, we perform selfless acts because we are emotional beings just as much, if not more, than we are rational beings. These emotional motivations –our concern for what is right and fair, our desire to be seen favourably by our peers and so belong to a social group – are now beginning to get their rightful due in other disciplines than psychology.

 

“The promise of cooperation is not some silly utopian dream. It is grounded in some of the best work and most rigorous research in behavioural science”, Benkler claims. The reason we re-examine old practices and try new ones is a result of the economic collapse of 2008. “This does not mean we’re all about to become socialists,” but “it means that we should look to ways we can harness cooperation and collaboration to improve the systems we inhabit, rather than stubbornly cling to impoverished descriptions of those systems.”

 

Benkler explains: “The emergence of social production on the Internet has given us countless newer, cheaper, easier, and more rewarding platforms for collaboration than we ever had before”. He continues: “For decades we have been designing systems tailored to harness selfish tendencies, without regard to potential negative effects on the enormous potential for cooperation that pervades society. We can do better. We can design systems –be they legal or technical; corporate or civic; administrative or commercial- that let our humanity find a fuller expression; systems that tap into a far greater promise and potential of human endeavour than we have generally allowed in the past.”

 

The Evolution of Human Cooperation

 

In the second chapter, Benkler looks at the evolution of human cooperation. “The surprising aspect of our turn to biology in the last decade is that it tells a story about human nature and social behaviour that is more sophisticated in its understanding of the interaction of culture and genetics, and, no less important, gives much greater play to cooperation.” and “Current evolutionary science is beginning to offer us new, revealing insights into cooperation. It is helping us explain not only why acting cooperatively, or altruistically, increases our individual chances of passing along our genes, but also why groups can benefit from having strong cooperative practices and proclivities.”  

 

Reciprocity (direct and indirect) can explain a lot of selfless behaviour (selfless in the sense that it helps others at a cost to the helper. But according to Benkler, evolution can also favour behaviour at the level of groups, whose members will sacrifice themselves for the good of others in the group, even if it works against their individual chance of survival. This view had been controversial for a long time. By the late 1960s, group selection was largely banished from the mainstream. Biologists insisted that selection happened on the level of the individual, even at the level of the gene.  Today, the theory of group selection is not only respectable again, but even essential to explaining many of the cooperative behaviours we observe.

 

Anthropologists Rob Boyd and Pete Richerson found that cultural traits evolve just like any other – a cultural practice that improves the group’s fitness, will persist, and one that doesn’t will become extinct. Their conclusion is that societies or cultures that encourage cooperative practices are more successful and likely to survive, especially in a challenging environment, than those that do not. Research shows that cultural traits evolve by a similar, if faster, mechanism to genetic ones. That does not mean however that culture does all the work. According to Benkler, voting, a cooperative cultural practice that seems too recent to have been affected by genetics yet may actually have a genetic component. This is based on the assumption of the existence of a genetic personality trait called “conscientiousness”, one of the five most widely used traits classifying personality. Studies have shown that these are between 42 and 57 percent heritable while shared environmental factors (such as a shared home) were not correlated with personality at all. The point is here not that there is a gene for voting, but that there are genes that predispose us to vote under the right cultural conditions. The same is true for religion, fight in a war, etc.

 

A key component in cooperation is having the ability to trust. One of the amazing findings of the researchers was that the disposition to trust seems to have a biological component, which also suggest a genetic basis. This closes the circle. “Behaviour is affected by the physical brain, which in turn is affected by genes. Culture places selective pressure on individuals to conform to certain behaviours, and conforming to those practices may be harder or easier for different individuals, based on their genetic predisposition,” Benkler concludes. “What we are left with, then, is a developing story of the combined effect of genes, social dynamics, culture, and evolution.”

 

But how do we explain that selfishness, cruelty and other “evils” still exist?  “First,” Benkler explains, “systems of reciprocity aren’t perfect, so there is always some room for some individuals to get ahead by being selfish at the expense of those who cooperate. The second reason is that ‘good’ and ‘cooperative’ are not always synonymous, as rabid nationalism or gang warfare clearly shows. People can work very closely together within their group, while committing the worse atrocities to people belonging to another group.  “So if we want to build a society in which individuals cooperate generously and unselfishly towards a common good,” Benkler concludes, “we need to remember wt building a society for genes, but for people, with unique psychology, behavioural responses, and cultural practices”, and “If we want to understand this essential behaviour, we need to pay attention to the human behavioural and social sciences, to history, and to technology, law and business.”

 

Psychological and Social Influences on Cooperation

 

“Our economic models”, Benkler explains, “which assume people to be driven entirely by self-interest, clearly do a very partial job. The psychological and sociological models are more nuanced, but less precise.” Benkler refers mainly to studies of behavioural economists like Tversky and Kahneman, who mainly try to integrate insights from psychology with neo-classical economic theory. Benkler first examines basic human drivers like needs, goals and values. In psychology, the classic theory of hierarchy (Abraham Maslow) puts basic physiological needs at the base of the pyramid, ascending to safety, to love/belonging, to esteem, and finally to self-actualization. Edward Deco and Richard Ryan developed another theory of needs, which posits that humans have three basic needs: autonomy, competence and relatedness. Goals play a similar, but more active role in driving human behaviour, whereas “values” tend to be more socially orientated. The important thing to grasp is that people are not only motivated by material rewards, but by a range of forces, some more conscious than others, and when we think of all forms of motivations as “incentives”, we make grave errors.

 

 One of the things Tversky and Kahneman explain is that people make different decisions depending on how a situation is presented. To prove their point, they use experiments like the Wall Street/Community game. They give two subjects, A ad B, three offers (they have to decide without knowing what the other player will do):

-       If A cooperates and B refuses, B gets 10$ and A gets nothing.

-       If B cooperates and A refuses, A gets 10$ and B gets nothing.

-       If neither A or B cooperates, both get 2$.

-       If both cooperate, they get each 5$.

I the game was presented as “the Community Game”, 70 percent of the subjects (varying from college students in the US to pilots in the Israeli air force) cooperated 70 percent of the time. But if, without changing the rules, the game was presented as “The Wall Street Game”, only 33 percent cooperated of the time. Another interesting finding of this experiment was that those who were often out for themselves in the real world could be moved to cooperate simply by reframing the experiment as a “Community Game”.  “So now we have two major psychological pillars for understanding what makes us behave cooperatively or selfishly,” Benkler explains, “the fact that we have a divers set of needs and goals, and the importance of the situation to determining how they are triggered.”

 

Okay, but what about personality? The most widely used criteria to map personality are openness, conscientiousness, extraversion, agreeableness, and neuroticism. The million-dollar question is: can science explain why some people are basically selfish and others basically nice, reliable and cooperative? Benkler cannot answer this question: “Human behaviour is very complex, and a neuroscientific, biological understanding of the brain simply isn’t enough to fully explain precise patterns of behaviour, and precise responses to social cues and context.” On the other hand, it seems that people want to conform to social conventions, but to do so, they need to know what others are doing. When the company we keep is cooperative, we too are more likely to be cooperative. “We are social beings no less than we are individuals,” Benkler explains. “Systems that let us be both work better than systems that see us just one or the other”.

 

Empathy and Group Identity in Human Cooperation

 

There seems to be a biological basis for phenomena like being moved when watching emotional scenes in movies. We experience other’s pain as though it were or own. Our brains not only mirror pain, but also motor events and pure emotions. For instance: if subjects look at videos of people expressing disgust, the same neurons in their brain fire that are activated when themselves are exposed to disgusting smells. Experiments show that the more subjects know about one another, the more they can imagine themselves in the shoes of the other, and the more empathetic (and generous and cooperative) they are. So an obvious way to harness this tendency to encourage generosity and cooperation in the real world is by humanizing the people who need our help. 

 

“If empathy is what makes us identify with, and sacrifice our interest for, other human beings, then solidarity, or group identity, is what motivates us to identify with and sacrifice our interests for those of the group to which we belong,” Benkler writes. “Our desire to align ourselves in this way may explain why one of the most powerful phenomena of the past two centuries has been the rise of the nation-state, which has superseded the clan, tribe, or villages as the primary marker of modern identity.’ This group identity, belonging to a state and solidarity between compatriots, results unlike empathy in not only an “us”, but often also a “them” too. And we treat “us” and “them” very differently; just think of the more than a hundred million people that have been killed in the last century on the basis of “solidarity”. Luckily, we are capable of identifying with more than one group at once, and even changing our affiliation group as conditions change.

 

Benkler gives the example of community policing in Chicago to show how cooperation can be fostered within a social and public institution by introducing humanization, empathy and solidarity. 

 

The Importance of Communication and Fairness

 

Communication, especially face-to-face communication, matters a great deal in fostering cooperation. Countless management studies have shown that team-based production built on continuous communication has become a major part of contemporary management and organizational strategies, not just at Toyota, but at some of the other biggest and most successful companies around the world. Furthermore, loose networks have been formed of (even competing) firms working together to come up with new products, processes and ideas.

 

“Fairness” is also very important factor when people are working together. Benkler distinguish three forms of fairness: fairness of outcomes, fairness of intentions and fairness of process. The simplest way of defining fairness in the distribution of wealth is equality: everyone getting the same percentage of the pie. However, equal distribution of resources is extremely difficult in most situations. Anthropology finds that there are enormous differences in conceptions of fairness, so a universal, stable definition of fairness does not exist because it varies according to both cultural norms and the situation involved. Benkler points out “American political culture is built on the notion that everyone should have an equal chance (…) and “Similarly, the very strong American emphasis on the spirit of entrepreneurship, individual achievement, and pursuit of wealth reinforces a theory of fairness based on effort, talent, and contribution rather than strictly equal outcomes.”

 

There is evidence to suggest that we care even more about the process than the actual outcome of a situation. An example is the lottery: we accept that someone wins a million dollar because we consider the process as random and thus fair. But what about wages? The traditional economic theory states that ‘the market ‘ determine wages, no room for fairness there. However, there are huge disparities in wages for comparable jobs among firms within a single industry. First, Benkler compares firms that use a definition of fairness that means “pay-for-performance” with firms that use fair meaning “equal”, as in having fairly flat wage structures. A set of studies conducted in the trucking and cement industries by show that companies with high wage disparities that aren’t tied to worker performance (but the result of chance, nepotism, or other factors that are not seen as fair), employees perform poorly. However, they perform equally well under a flat pay scale as under incentivised pay-for-performance, if that flat scale is the formal policy of the company. “But the long-held notion of what it takes to “get the incentives right”, in other words to impose systems that try to monitor performance and pay exactly for what is done, misses the basic insight that fairness matters,” explains Benkler.

 

Our desire for fairness is a critical component of human motivation and behaviour, and it is independent of self-interest, empathy or solidarity. “If we want to build a system that motivates people to work well, or cooperate effectively,” Benkler says, “it’s not enough to offer them simple rewards or incentives.  We also need to think about how fair the system is.”        

 

Morals and Norms in Cooperation

 

In this chapter Benkler explains that “Just as it is important to us to be seen as fair and benevolent, there is much evidence to suggest it is extremely important to us to be seen as socially appropriate –perhaps even more important than it is to obey authority or the law.” One fascinating aspect of norm-driven behaviour is that people seem to care a lot about conforming with others about what is seen as “normal” behaviour. “When we design systems of cooperation, we can use that tendency as a way of encouraging people to choose prosocial behaviour” explains Benkler, using examples from the music industry where artists like Radiohead expect their fans “to do the right thing” and pay for their music that can be downloaded freely from their website.

 

To answer the question of just how much official regulation is needed to keep a system running smoothly, Benkler takes a look at the possibilities of self-regulated commons. Elinor Ostrom’s ‘Governing the commons’ (1990) describes more than a dozen systems of self-regulated commons throughout history that did not devolve into tragedy (very few stable, complex systems can run with no rules at all without running amok). Benkler describes two examples: irritation systems amongst Spanish farmers, and the distribution of lobster areas amongst fishermen. Both the farmers and the lobstermen were able to sustain stable systems for generations without the need for explicit formal property rights and without a state exercising authority over them to prevent abuses. Communities can and do adopt certain techniques to make sure that participants curb their selfish impulses and behave well. There are rules, but they are not enforced by market and pricing schemes, nor do they have to be imposed from above.

 

“These studies set the background for the explosive growth in common-based practices in the twenty-first century,” Benkler claims: “For the commons has finally come into its own. Because in today’s knowledge economy, the most valuable resources –information and knowledge- are themselves a public good, and the best way to develop and maximize this good is through millions of networked people pooling that knowledge and working together to create new products, ideas and solutions.”

 

The designers of Wikipedia didn’t set any official rules or regulations; they relied entirely on a (then) simple set of norms, and on the community to keep the project in line. Benkler: “Wikipedia still offers an extraordinary example of a system that governs itself primarily through conversation and self-regulating norms rather than by market mechanisms or a formal and authoritarian management structure.” Many of our existing systems are designed in such way that conflicts are actually taken up a hierarchy and not resolved by following a shared set of norms. “Wikipedia, for all its warts, is an amazing example of how people can work together, at large distances, not just to resolve conflicts but to solve discrete problems and produce actual outcomes –in this case a stable, reliable text.”

 

But can the model of Wikipedia be used in designing other systems and institutions? People follow more readily game norms when they see these norms as self-imposed or freely chosen. “What this means in terms of designing systems,” Benkler says, “is that even if some rules or norms must be introduced or set from above, one should still try to build in as many mechanisms for self-governance, and offer as many opportunities for people to participate in reviewing and revising these rules, as possible.”

 

Then the following question arises: if norms are so powerful in regulating behaviour, can we use law as a tool to help mould those social norms into the shape we want? Evidence suggests that this is possible. For example, the ban on smoking in public spaces plays an important role in making smoking in public socially less acceptable. In the beginning people are following the law, but soon thy simply follow the norm. Legislating a certain behaviour can thus lead to new norms and standards. “This has significant implications when it comes to designing systems;’ Benkler explains. “It suggests that when we institute prosocial or cooperative norms, they become self)-reinforcing over time. The systems become dynamic: The more we practice cooperation, the more we believe in the virtue of being cooperative.”

 

Rewards, Punishments, and Motivation

 

The question of how intrinsic motivations intersect with self-interest is a critical and complicated one. We must not be naïve and assume that self-interest does not count. But it motivates us to a far lesser degree than generally assumed. Contrarily to economists’ believes, simply raising the stakes do not significantly change the levels of cooperation.  But the relative cost of cooperating does make a difference in people’s behaviour. Benkler uses the example of recycling. In cities with recycling programs, compliance is much higher when the municipalities do curbside pickup rather than requiring residents to take recyclables to some central location. In addition, convenience turns out to be a far more important factor in determining compliance than are material incentives (fines).

 

Benkler discovered that the most successful forms of online cooperation are the ones that found ways to break the work they needed to get done into small independent modules so that the volunteers could contribute in small increments in a way that was not too burdensome. Or simply put: it is much easier to motivate a million people to do something that will take them five minutes to complete than it is to motivate just a few people to do something that might take them months or years to accomplish.

 

But if costs really matter that much, Benkler asks, why bother with intrinsic motivations? He provides the answer: material and social motivations don’t always work well together; in fact, rewards and punishments often crowd out, or cancel out, our intrinsic motivations.  Benkler uses the example of blood donors in the United States before and after the 1970s. Before, 1970, donors were paid to give blood. But the American system performed much better after the transition to a volunteer system in the 1970’s. “When we are offered payment for a benevolent activity,” Benkler explains, “it signals to others that we are not as selfless as we wish to be perceived – which in many cases is at least part of our motivation to act selflessly in the first place.

 

Another interesting explanation of this behaviour is given by psychologists Deci and Ryan, who claim that “people have an innate need for autonomy; we need to feel that we are in control of our own preferences, principles and actions. So when we think we are somehow manipulated or controlled by rewards and punishments, our sense of autonomy is threatened, and then we rebel (albeit subconsciously) by refusing to do, or by doing the opposite of, what is desired.

 

Benkler does not claim that money is not important: “Clearly money is more important for some people than others – that is why some of us become stockbrokers and others become schoolteachers. We know from hundreds of experimental studies that in any given situation, we can expect over half the population to behave cooperatively and generously, and about one third of the population to behave selfishly. So what we really need are systems that harness both social and selfish motivations while avoiding the latter crowding the former out. In other words, we need systems that offer material rewards to those who tend to be motivated by self-interest, without putting of those who are intrinsically inclined to cooperate.”

 

Examples are the numerous open-source software development projects in which many of the participants are paid to work on the project but many others are not and yet contribute for free. They do so because they think it is the right thing to do, because they think contributing is fair, because it enhances their sense of identity and community, and, quit simply, because it’s fun. What about those who are being paid? Crowding-out effects occur when the offer of material rewards either clash with a person’s expectation about an interaction (whether it’s business or social) or interferes with a person’s sense of autonomy and control. An interesting practice that helps preserve the developer’s sense of autonomy is the fact that the payment comes from a different source (a firm like IBM, but that could also be ‘the state’, my remark) than the instructions and directions (that come from engineers). This is important because it seems to help the developers psychologically separate the payment from the process of creation, and the monetary incentives from the intrinsic ones. 

 

Workers versus CEOs

 

In the 1970s, American CEOs made about 25 times more than the average worker in their firms. Bu 2000, this figure was over 500. This reward system is based on the agency theory that claims that we are all only interested in maximizing our own self-interest. Encouraged by economists like Michael Jenkins, Firms started to pay their executives in stock options, so their interest would be the same as those of the stockholders. The theory worked… for the executives. In 2002 Jenkins had to admit: “this system of compensation was encouraging executives to focus on short-term returns, which boost the value of their options, at the expense of long-term results.” Despite countless studies, nobody could find a connection between executive pay and a company’s performance. Second argument against this method of CEO payment is self-selection: it draws the kind of managers who are driven mostly by monetary return and less by intrinsic rewards. The third is that this model signals to everyone in the company that money is the main currency, far exceeding effort, contribution, and talent in terms of value. If the leading people are seen as selfish and overcompensated, employees will become resentful and unmotivated.

 

“Excessively high executive salaries frame the culture of an organization in which is okay to be greedy, self-serving and uncooperative”, Benkler concludes. “Yet thousands of the most qualified, intelligent, creative, and educated people in the world choose to earn vastly less in academia instead of taking their skills to the private sector.”

 

Punishment is the flip side of rewards. “There is extensive evidence that punishment systems can backfire at least as much, if not more than, reward systems”, Benkler claims.  In the United States, incarnation rates are far higher than any other comparable country, yet crime rates are also much higher than those in countries that use more moderate and less punishing forms of public sanction.

 

“In the past, the way we have managed all these potentially conflicting motivations is by segmenting our lives into separate spheres –business, home, social life- in which we have different expectations of ourselves and of others,” Benkler explains. “But this is less than ideal; in today’s increasingly complex world, these spheres are constantly clashing and intersecting with one another, and the kinds of motivations that drove us in the social sphere are increasingly important to allow us to innovate and grow in the rapidly changing business environment as well.”

 

The Business of Cooperation – The Toyota Model

 

The New United Motor Manufacturing, Inc (NUMMI), a joint venture of GM and Toyota that took over a declining plant in the United States under Japanese management in the eighties, was able to harness the kinds of intrinsic motivations and dynamics that make workers not only more innovative and more productive, but also happier with their work and workplace. Workers were organised into collaborative teams of four to six, each led by a team leader. Each team had the freedom to experiment with different ways of performing their task, and to decide, together, on the best way to perform the set of tasks that needed to be completed at their station within the time frame. Team members rotated jobs and were encouraged to develop an overall understanding of the entire production process. They received five times as many training hours as they had under General Motors. Contrary to the control/incentives method on all levels practiced by GM, under Toyota, the teamwork approach taken at the line level extended to both supplier relations and executive pay; they partnered with suppliers on investments, worked with them on quality improvements, and selected the suppliers based on whom they had the best longs-standing relationship with, rather than from whom they could extract the lowest possible price. At GM, CEO pay was 200 times what a worker had, at Toyota, it was about a tenth of that. The result? GM had to be rescued by the US government; Toyota emerged as the largest automobile manufacturer of the world.

 

Southwest Airlines is another great example. This company allows employees to maintain high levels of autonomy and emotional engagement; by installing a strong sense of fairness both through its employment and compensation practices; and by fostering a strong commitment to a shared set of norms –most notably to put customer service ahead of profit. Pilots, flight attendants, and ground crews work as peers in a way that would be considered inconceivable, socially, in other corporations. In addition, Southwest adheres to a profit-sharing model at all levels of the company. The firm concentrates on relationships rather than incentives.

 

Benkler explains that “Within the field of management science, there has been a long-running debate between those who recommend controlled, “incentive-compatible” business models and those who advocate what Douglas McGregor fifty years ago called “The Human Side of Enterprise.” That companies like Toyota, Southwest, and others representing the latter view are so successful could not be starker proof of the fact that success in business –any business- isn’t achieved through rigid corporate hierarchies or astronomical CEO pay packages, but by fostering an inclusive, social, and collaborative workplace where performance is intrinsically rewarding. (…) These companies also know that continuous learning and innovation can’t happen in an organization that treats its members like mindless robots. It can only happen in an organization that welcomes and taps –the diverse insights, skills, and talents of every human being it employs. Only those organizations that have figured out how to motivate employees intrinsically, and how to engage them in the enterprise as a community of shared interests and common purpose, will thrive. As we are learning every day, that requires an organization to be human, values-driven, fair, trusting, and trustworthy from the top down.”

 

Why open source works

 

The Internet makes it possible for companies and non-profit organizations to harness the collective insights, ideas, and contributions not just of the people within the organization, but also of the millions of people outside it. “Understanding how to value what people create and share online has been one of the biggest challenges for businesses in the last decades,” says Benkler.

 

A very interesting example of transactions that are framed as cooperative rather than market-based we find in the music industry. The first reaction of the music industry against illegal downloading was using tougher regulation and enforcement. But at made matters even worse. Some artists (Radiohead is the best known example) started to use a different method: they assumed quit correctly that true fans would be intrinsically motivated to support the artists whose music they enjoyed, and they switched to the cooperative “pay-as-you-wish” model. They offer their music directly on their website, explain that some payment is expected, but without policing or finger-waving. “A new “middle class” of artists -artists who are not out to make millions, but are trying to build fan bases stable enough to support them in being professional, full-tile musicians,” Benkler explains. Ad their system works. Benkler’s study showed that 48 percent of fans over a period of five years paid $8 per album, even though $5 was the minimum payment accepted at the site.

 

How to Raise a Penguin

 

Evolutionary biology discovered that our brains light up differently when we cooperate with other humans. It makes (many of) us happier. Benkler concludes his book by saying that now, at the end of the first decade of the 21st century; we are poised to apply those lessons to improving the systems, in which we live, work, and play. “We are indeed all concerned with material self-interest, at least some of the time, and at least to some extent. But many of us are not so concerned with self-interest that we permit it to overwhelm the many other things we care about,” says Benkler. “If we wish to build a society, an organisation, or a technical system in which individuals cooperate, then we need to build those systems to account for all those motivations, and for the complex interactions among them. And, finally: “The past fifty years have been dedicated to refining systems based on this narrow, crabbed view of human nature. Let’s dedicate the next fifty years to the vastly more complex but infinitely more rewarding task of designing the systems we inhabit for the kind of diverse, complex, but overall fair-minded, moral, sociable, and humane beings we in fact are.

 

 

 

 

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