Francis Fukuyama and the Wealth of Nations

January 1 st 1997

What is the relationship between self-interest and virtue in the realm of economics? Can the two even relate in a coherent system within the tradition of Enlightenment political philosophy? Francis Fukuyama, an analyst at Rand Corporation and author of The End of History and the Last Man (New York: The Free Press, 1992) believes they do, in some cases to great advantage. The way in which these seemingly antithetical motives actually interrelate is the subject of Fukuyama's most recent book, Trust: The Social Virtues and the Creation of Prosperity (New York: The Free Press, 1995), which sets out the author's idea of the economy in a modern global context. This idea of the economy is based on what Fukuyama believes to be the motors of human social interaction: rational desire and the struggle for recognition.

Neoclassical economics qualified

To Fukuyama, the economy is essentially the rational playing field for these two driving forces. People establish economic relationships in order to supply the necessities of life and, increasingly, to satisfy the individual's desire for recognition. The underlying motive in this realm is rational desire, traditionally termed self-interest, or utility. While Fukuyama takes a basically neoclassical view of the economy, he avoids a purely mechanistic approach in which the scales of self-interest are determiners of human action, and instead probes into the significance of the social virtues, and their resultant utility of trust.

In this version of the economy, individual interests in private property, or as they may be asserted in law or otherwise rationally played out, are sometimes subordinated to generally held cultural values, or habituated norms. Fukuyama believes such a political economy is more in line with Adam Smith's original conception: a system in which rational thought is the connecting glue among self-interested individuals, but which is also influenced by "arational" virtuous motives such as morality and religion.

According to Fukuyama, the liberal-democratic and capitalist convergence of the late twentieth century has virtually eliminated historic clashes of ideology, and has left the global economy as the main proving ground of individual worth and, to some extent, cultural supremacy. Extreme worldviews such as Marxism-Leninism and Aryan fascism have given way to a rational political, economic, and social order that supplies all humanity's basic needs as well as the innate desire for recognition.

An essential characteristic of this emerging order is its acknowledgement of differing cultural (especially religious) values which are inexplicable in purely rational terms, but nevertheless play a significant role in the economy. However, all cultures are not necessarily equal, and an appropriate standard for measurement is their propensity to encourage prosperity, says Fukuyama.

Fukuyama stresses that the modern economy is bound up in the whole entity of the community, or society, and cannot be separated from the fundamental human need to be socially connected. This he understands as part of the desire for recognition. Yet the economic fabric is of prime significance in Fukuyama's view. Maintaining the delicate balance of a satisfying liberal-democratic free-market society depends on the continuing vitality of the economy, as the means by which people supply both their rational desires and their desire for recognition. The economy's health depends to some degree on the recognition of and adherence to norms such as trust, which also act as an effective social glue.

Virtue and trust

The author focuses his main argument on the incidence of trust as a cultural characteristic in various societies. While trust is not a virtue in itself, it is the perception within a community of commitment to shared norms and moral virtues such as honesty and cooperative behaviour. Fukuyama also uses the term "social capital" for the resultant utility and economic input, and defines it thus: "a capability that arises from the prevalence of trust in a society or in certain parts of it. . . created through cultural mechanisms like religion, tradition, or historical habit" (Trust, p. 26). Hence, in Fukuyama's view, the economy has certain tangible but "arational" inputs which cannot be purged for the sake of a mechanistic universe.

This latter point is of key significance since it seems to depart from an Enlightenment tendency to view the irrational—human endeavours and strictures such as religion and morality—as somehow generated by the survival instinct, or as tools of oppression in class-struggle escha-tologies, or yet as a holding tank for notions still unarticulated scientifically.

While Fukuyama avoids promoting religion in public life, he stresses that religion must be accepted as a source of culture and seen as a less manipulable form of socio-economic utility (as in Max Weber's studies of Protestantism, and Tocqueville's Democracy in America). He does not, however, clarify whether there is a deeper motivating aspect in religious faith as a root of culture and social virtue. The author opts instead simply to accept its presence. In choosing to avoid this basic issue, Fukuyama ultimately remains rationalistic in his approach.

According to Fukuyama, trust works wonders in the economy by enabling people to form bonds with each other for the purpose of doing business without the disutility of drafting excessively protective contracts, or finding other ways of hedging their risk. The process of setting up the joint venture is thus more efficient and benefits from built-in cost savings, both in time and legal fees. Entrepreneurs can also look farther afield, beyond family boundaries, to find the best managers for their enterprise.

This "spontaneous sociability" is the chief form of social capital, and is evidenced in broader society by the existence of various voluntary associations, such as church groups, social organizations, labour unions, and other groups that seek to achieve a common good, as opposed to a vested interest. Fukuyama also underscores that large private corporations constitute evidence of a spontaneous sociability within a given economy.

Social capital and the global scene

To illustrate his thesis, Fukuyama turns to the world scene at the "end of history" and reviews some of the major global economies. Low-trust societies such as China and southern Italy emphasize a Confucian duty to the family to the detriment of nonkin relationships which are key to the development of large-scale private enterprise. Some other low-trust societies, such as France and South Korea, have developed more robust economies, but have done so with unusually wise state initiatives in certain capital-intensive sectors.

The Japanese are high-trust individuals with a bent for "spontaneous sociability"; their resultant propensity for establishing large, family-owned but professionally-managed enterprises within cooperative networks actually predates WWII by a century, and is based on both a Buddhism characterized by a commercial ethic similar to Protestantism's and a less stringent Confucian duty to family.

The German industrial powerhouse also has roots dating back to the nineteenth century, which generated a high-trust economic regime committed to collective bargaining, labour-management reciprocity, and industrial teamwork. A culturally characteristic spontaneous sociability was also responsible for the bustling market that eventually developed into the corporate industrial economy of the United States.

So important is this oft-ignored social capital that Fukuyama wants to ring a modest alarm, at least in North America. In short, he subscribes to the growing school of thought that perceives a current crisis of trust in American culture. Fukuyama argues that traditional American society exhibited a strong individualism, but this has been an individualism quick to form associations with other individuals.

The family has also been a strong institution traditionally, but never duty-bound its members in the strict Confucian sense. As well, from its Puritan roots, American culture has been religiously sectarian, but this spirited independence has been the basis for like-minded group dynamics, and a proliferation of voluntary organizations; in other words, spontaneous sociability and social capital.

Perhaps ironically, Fukuyama notes, the cultural value revolution of the 1960s and 1970s has done more to enshrine a litigious rights-based ideology than traditional American culture ever anticipated. Arguably, the trust-based voluntary associations that have been so prevalent in the past (a societal boon in Tocqueville's eyes) are being replaced by special interest groups as the telling characteristic of American society.

Source of virtue

Readers of The End of History and the Last Man may well ask whether Fukuyama's present economic thesis depends greatly on accepting his historicist Hegelian view of the inevitable accession of the universal liberal-democratic state implicit in the earlier work. In Trust, Fukuyama does indeed assume that a free-market economy is best able to produce and utilize the technological advances that produce and undergird the ultimate society. But that assumption need not be fully accepted in order to appreciate the author's argument with respect to the interplay of virtues and the resultant input of trust.

The essential critique of Fukuyama, however, is that the role he attributes to an objective morality (i.e., one that has its source outside of the rational universe) is too slim, if it can be said to exist at all. To the author of The End of History, the rational universe is the socio-economic network of human relationships.

Although Fukuyama does not accept the controlled economy, his broader worldview reduces human history to a nearly Marxist take, with its emphasis on economics as the prime motivator of human activity. Fukuyama hints at the influence of cultural aspects of reality, such as the social, legal, moral, and even religious spheres, but he only wants to acknowledge their effects within the economy—the global economy—which he believes is the sum total playing field of human interaction at the Hegelian "end of history."

With this rational order also comes, for all practical purposes, the end of philosophy, not to mention theology and faith in God. God has been found, understood, and harnessed; he is the struggle for recognition. All other motives are derived thence.

The result of this deterministic commitment is that Fukuyama runs into a fundamental contradiction. He wants on the one hand to acknowledge certain "arational" forces he perceives at play in the market. On the other hand, the author wants to maintain an integrity with his earlier thesis on the "end of history," which entails an all-encompassing rational order.

Fukuyama's attempt at integration culminates in a weak dovetail instead of a viable graft; he justifies the presence of virtue by acknowledging its value, but avoids probing too deeply for its roots. Perhaps his use of the term "arational" in place of the word "irrational" for the social virtues is Fukuyama's method of dealing with anomalies within his essentially rationalistic system. What is "arational" is simply a form of deviance from rational action, while "irrational" behaviour should constitute an affront. While the latter is subversive, the former can be utilized.

The philosophical difficulty inherent in the author's economic view is significant. While this rationalistic dilemma is anything but harmful to Fukuyama's acceptable thesis that trust is an asset in commercial relationships, the undeniable presence of virtue as the foundation of trust may yet prove fatal to his philosophical commitment to rationalism.

For what is the foundation of virtue? If we answer that question, and acknowledge the existence of created order, of objective morality, and hence of the supreme God, the rational, self-contained universe that Fukuyama cannot quite escape readily implodes. But the modern secular thinker will not arrive at this kind of "supernatural" conclusion, and thus Fukuyama must maintain the rationalist guise for his idea of the economy, even in the face of moral virtue.

 

Philip Prins is a representative for the Christian Labour Association of Canada in Calgary.

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