Quality and Innovation

Today’s Washington Post includes an article on “How We Can Restore Confidence” in our economy. Confidence, after all, is one of the energetic drivers of the economy – without it, spending grinds to a halt, and the delicate equilibrium of economic flow is jeopardized. The author, Charles T. Munger, reflects on the reasons for the meltdown:

Many contributors to our over-the-top boom, which led to the gross bust, are known. They include insufficient controls over morality and prudence in banks and investment banks; undesirable conduct among investment banks; greatly expanded financial leverage, aided by direct or implied use of government credit; and extreme excess, sometimes amounting to fraud, in the promotion of consumer credit. Unsound accounting was widespread.

How did we, as a society, collectively allow these things to happen? Because many people were motivated by the huge profit potentials associated with real estate speculation, new financial instruments, and expanded financial leverage. This motivation towards self-interest, according to sociotechnical researcher Brian Whitworth of Massey University in New Zealand, tends to destabilize society by breaking down institutions and other systems intended to promote social order.In “A Social Environment Model of Socio-Technical Performance” he explains why [with my annotations in brackets]:

“While traditional technology like word processing supports individual competence, socio-technical systems support some sort of community synergy and have defenses against anti-social defection” [that is, acting against the interests of the group in a detrimental way (e.g. violation of human dignity, theft, cheating)]. “The social environment model suggests that people in society recognize both [social good and self-interest], and [tend to]combine them by anchoring one and applying the other. Anchoring social good then applying self-interest explains the highly profitable market trade systems of the last century, where individuals seek profit under social good laws. However contented individuals could anchor individual good, and then seek community benefit [through their positive, pro-social, individual contributions; Whitworth suggests that systems like online troubleshooting boards exemplify this approach because individuals have no incentive other than “good citizenship” to help others]. The latter is proposed to underlie the surprising successes of socio-technical systems.“

“Anchoring social good” is an intended outcome of public policy, which seeks to curb acts against society by instituting punishments. “Anchoring individual good” and seeking to apply one’s personal motivations for the greater good is a defining characteristic of successful socio-technical systems (like Amazon and eBay). The latter is aided by effective community policing where people take it upon themselves to enforce the rules of “good citizenship”.

This leads me to ask: what’s the socio-technically inspired public policy equivalent that might help us rectify the global financial crisis? I don’t have any good answers, but I think this research provides an interesting backdrop to analyze the situation against.