COVER STORY • 2

Implications of thePandemic for Capitalism

By Sir Paul Collier

Faced with the Covid-19 pandemic, neither Chinese autocracy nor
most of the Western democracies are emerging with much credit. To
understand why both systems have revealed severe inadequacies,
and what accounts for the exceptions, I draw on recent research thatis starting to reveal the characteristics that a successful societyneeds. They are cohesion, a capacity for wisdom and learning, andtrusted modest leadership. Covid has revealed why each of thesemattered, and in doing so showed why they matter more generally.

Social Cohesion
The first characteristic is a degree of social cohesion within acommunity. By social cohesion I mean a ready ability of the people
living together in a place to forge shared purposes, sharedunderstanding about how things work and don’t work, and sharedobligations among citizens. So defined, social cohesion isenormously important in building willing compliance at manydifferent levels. Most obviously, it is valuable at the political level: fordemocracy to work, its citizens need to be able to come together
around some common purpose, such as containing Covid, reachsome common understanding of how this is best achieved, such as“we all need to get vaccinated”, and then accept the implications at
the level of each individual: “I have a duty to get vaccinated.”
But it is also valuable at a smaller scale. A successful firm works
not as a nexus of contracts between individuals, but as a community.
The workforce rallies around some common purpose set by good
leadership – this is what Toyota managed to create when it
developed “quality circles” to produce fault-free cars. The common
purpose was linked to a common understanding of the problem –faults had to be spotted at the point on the production line where
they first occurred. This translated into individual actions – “faults
are treasures” to be spotted and reported instantly. Hence, they
implied an obligation on each worker to stay vigilant, but not toabuse their new power to stop the production line. Most obviously, a
successful family is a community in which those of its members in
the prime of life accept obligations to the young and the elderly.
Fortunately, humans naturally form communities: evolution has
equipped humans to be far more pro-social than any other mammal.
We are hard-wired to belong to communities because they are more
effective at achieving human goals than individuals in isolation.
Rousseau was the first philosopher to see the advantage of
co-operating at scale in a community: hunting solo we could only
https://www.jef.or.jp/journal/

Author Sir Paul Collier

catch rabbits, whereas hunting together we can catch stags. Within
them, we want to gain the good opinion of the other members
through some attribute. That attribute can be thought of as being “agood person”. What it means to be a good person will vary between
communities. In some, the characteristics which make being so
judged can be ranked.
For example, in a Viking community a good person was brave,strong, and brutal against the enemies of the group. In a modern
meritocracy such as a university department, a good person may
mean one who has high cognitive abilities and publishes a lot of
influential papers. In both of these superficially very different
communities, members were ranked: some people had higher status
than others. But in other communities, people are not ranked but
judged according to whether they meet a threshold, such as
respectability, kindness, or loyalty, which can be met by all its
members. Successful societies abound in such criteria, so thateveryone can potentially gain respect. That desire for the good
opinion of others is fundamental: by harnessing it to a common
purpose, the group can create willing compliance with actions thatare individually costly but collectively beneficial. This was needed
during Covid. The common purpose of containment required
everyone to avoid infecting their neighbors. Denmark could rapidly
reopen schools because everyone accepted that children must be
kept clear of older people. In contrast, in the United States theimmediate response to Covid was queues outside gun-shops: shootyour neighbor was not a viable strategy.
A community forges common purposes through dialogue.
Dialogue engages everyone: all members of the community canparticipate and co-own the outcome. It flows back and forth between
equals who aim to understand each other, in contrast to instructions
flowing down a hierarchy. An analogy is the game of ping-pong:participation implies mutual acceptance of its rules. The rules of
dialogue preclude abuse, and presume a mutual willingness tosearch for common ground. Even when it cannot be found, people
come to understand the validity of the other perspective, reflecting
their different life experiences. Dialogue usually takes the form of
narrative: it is the style that all of us have evolved to master. It is
inclusive, in contrast to deductive analytics and quantification, bothof which privilege skilled participants who may be drawn from a
distinctive part of the population with its own priorities.
Dialogues not only build common purposes. To achieve thosecommon purposes through coordinated action they need to build aJapan SPOTLIGHT • March / April 2021

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common understanding of a situation, so that the community canforge a common strategy for action. They are necessary for
coordinated action, but not sufficient in themselves. The final step isa sense of common obligation. The rules for bestowing good opinion
are linked to the action required of each member. The key concept
here is “contributive justice” proposed by the celebrated Harvard
moral philosopher Michael Sandel (The Tyranny of Merit, 2020). By
this he means that fairness hinges on mutuality: everyone must
contribute what they can, and through this we gain the respect ofothers and self-respect. For people to be able to contribute, theyneed agency. They may contribute in multiple ways: throughparticipation in the dialogue that builds the purpose, throughbestowing good opinion, and most especially through actions that
conform with the strategy.
In the Western democracies, this need for social cohesion has
recently been questioned. Diversity has become highly valued, andmost especially the assertion and celebration of distinct minority
identities, and this is sometimes regarded as incompatible withsocial cohesion. That same fear of incompatibility is manifest in
China and India, where the solution has been to suppress minority
identities so as to strengthen cohesion. But I think that both these
responses misunderstand the relationship between social cohesion
and diversity: properly understood, there need be no tension
between them. People can hold multiple identities. A society can be amosaic of many groups, each with its own distinct identity, as longas all its members share some common overarching sense of ashared identity. Thus, at the level of a polity, people can have strong
regional and class identities as long as these do not conflict with acommon sense of belonging to the whole. Diversity is evencompatible with such sub-national identities being mildly
oppositional: “I am a Scot and we have long fought the English”; “Iam a Yorkshireman and we have long struggled against the
Lancastrians.” They only become damaging if defined in opposition
to the whole: “I am a Scot and therefore not British.” But who should
be included in the whole?
The answer was provided by Nobel Laureate Eleanor Ostrom(Governing the Commons, 1990). The first of her principles by which
a community is able to overcome the tragedy of the commons isclarity of boundedness. Everyone in the community must know andaccept that they themselves are a member, and know the criteria bywhich all others are included: the rules of membership must be
common knowledge. As with common purpose, common
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understanding and common obligations, this common knowledge ofthe rules of membership can be built through dialogue. For practical
purposes, the most realistic rules of membership for a society arethose of citizenship.
Some societies were able to conduct a dialogue about Covid. In
others Covid was instantly contaminated by prior political divisions
and debate was abusive and polarizing, unable to build common
purpose.

Wisdom & Learning
In addition to social cohesion, a successful society needs wisdom.
Dialogue is an unguided missile that can lead a community into follyor trap a community in dysfunction. Plato thought that wisdom wasincompatible with democratic inclusion: decisions must be entrusted
to “guardian philosophers”. But this proposition is a dangerous culde-sac. In denying the agency of dialogue to most people, it divides
the community into “insiders” who set purposes and strategy, and“outsiders” who are expected to perform obligations to which they
have not agreed. This, I think, is a fundamental breach ofcontributive justice. Worse, the role of being a Platonic Guardian
attracts people who are over-confident of their abilities and arationale for why their own values differ from those of the majority:
they are wiser than others.
So, if everyone must participate in dialogue, but wisdom is anacquired rather than an innate attribute, what can be done? We knowthat knowledge comes in two forms: expert knowledge is what
academics acquire through research, and share through teaching;tacit knowledge is acquired through “learning by doing” in a context.
We have confused wisdom with expertise: wise decisions need to
combine these different types of knowledge, held by different typesof people. Wisdom evidently matters most when decisions are
difficult, which arises from complexity. But the more complex is theissue, the higher is the ratio of tacit knowledge to expert knowledge
involved in it (Paul Nightingale, “Tacit Knowledge and Engineering
Design”, in Anthonie Meijers (ed.) Handbook of the Philosophy of
Science: Philosophy of Technology and Engineering Sciences, NorthHolland, 2009). Hence, drawing on tacit knowledge is the critical stepin wise decision-taking. On complex matters, expert knowledge
without tacit knowledge is dangerous: the confidence of experts
becomes a menace. Fortunately, expert knowledge is designed to beshared – it can be taught. In contrast, tacit knowledge is very hard toshare – you learn it by doing it, and it is very particular to context.
So, the synthesis on which wise decisions depend is more easily
achieved by sharing pertinent expert knowledge with practitioners,
than providing experts with the vast mass of context-specificknowledge of experience. Hence the people who need agency forcomplex decisions are expert-informed practitioners, not experts.
The knowledge that matters changes in response to problems: werepeatedly need to adapt to new situations that we do not fully
understand. And so a successful community is one that iscontinuously adapting, experimenting and learning from trial-anderror. By devolving agency around a new common purpose, many
experiments can be conducted in parallel. Within a well-functioning
community, once an experiment works it spreads fast: people learn
from each other because they trust each other.
Covid was a new problem. Some societies learnt from the firstsocieties to be infected, as did New Zealand, or experimented withdifferent approaches by devolving agency to local communities, as
did Denmark. In others, exemplified by Britain, experts pretended
that they knew what to do based purely on their own modelling, andso decision-taking was highly centralized. In contrast to Denmarkand New Zealand, Britain ended up with appallingly high excess
mortality.

Leadership in a Hierarchy
Although both wisdom and adaptability are fostered by devolving
agency across the population, there is still an important role for
hierarchy and leadership. Many purposes depend upon coordination
at scale and although small communities happen naturally, large
ones have to be built by leadership. Hierarchy is necessary but
dangerous: it tempts leaders to use their power for their own
individual purposes. Bad intentions, arrogance, and charismatic
grandiosity all need to be prevented from usurping community
before hierarchy can safely be allowed into a group. Among all othermammals the only form of leadership is dominance. Bothdemocracies and autocracies can stumble into such leaders: Donald
Trump in the US, Xi Jinping in China. They centralize decisions rather
than devolve them, undermining both wisdom and adaptability.
Faced with such leaders, the advantage of democracy over autocracyis that the agency conferred by the vote tends to remove them, as
has happened in the US.
But humans have evolved a second type of leader who wins therespect of the group through sacrificing self-interest for the common
good. Joseph Henrich (The Secret of Our Success, 2016) notes thatin contrast to dominant leaders pro-social ones commonly use selfdeprecating humor. Such leaders win trust and so can becommunicators-in-chief. With this power they can swiftly reset
common purposes, strategies, and obligations.
Such leaders are able to reset not only purposes and strategy but
the very architecture of the decision process so as to suit thesituation. At times of uncertainty, the key priority is that experiments
should proliferate through devolved agency. But at times when thesituation requires a solution that is evident but demands substantial
self-sacrifice by everyone, trusted leadership can itself take thedecision. For example, in response to Covid a retail business mayneed to reduce its number of branches and expand its online service.
Decisions as to which branch to close cannot be devolved tobranches, but the leader may be trusted to take fair decisions onbehalf of everyone.
This is why Covid has produced such dramatic differences
between societies. In the US, Trump centralized decisions in thepresidency; in Britain, the civil service centralized decisions inWhitehall; in China, local officials in Wuhan were so scared of Xi thatthey suppressed information about Covid until it was out of control.
Dominance belatedly enabled containment, but too late to prevent a
global pandemic. In contrast, the leaders of Singapore, Denmark and
New Zealand had all built widespread trust among their citizens. In
Singapore this was used for swift and decisive leadership without
arousing dissent; in Denmark and New Zealand, leaders did not claim
expertise, but placed responsibility on everyone – “a team of fivemillion” was the slogan of New Zealand’s prime minister.

Conclusion
The implication of Covid is that capitalism can work well, but only
in a certain type of society. It is one in which agency has been
devolved across the population; in which despite differences, thesociety is cohesive because people accept a shared identity; in which
decision-taking is designed for wisdom and adaptability; and inwhich leadership is modest and widely trusted. And so the lessons of
Covid indeed have implications for both the conduct of businesses
and the design of political systems.
The genius of capitalism comes not from harnessing the primitive
instinct of greed that we share with all other mammals, but from ourJapan SPOTLIGHT • March / April 202113

unique human evolved characteristics of being able to bond into acommunity, to innovate, and to learn from each other. A successful
and enduring firm is a purposive community – a network of
relationships within and between teams that cooperate to achieve its
purposes. It is not merely a nexus of incentivized contracts between
individuals. A successful leader of a firm builds trust with
employees, suppliers and customers and through these, also withbanks, bondholders and shareholders. These relationships become
the key assets of the firm, encapsulated by all the connotations of its
brand. Being trusted, a leader can rapidly get a workforce andpartner companies to coordinate around new purposes, and new
problems, as has proved to be crucial during Covid.
Some firms have taken the short-term option of sacrificing theirworkforce and their suppliers, to maximize profits for shareholders.
Others have recognized that this moment of supreme stress is an
opportunity to demonstrate loyalties and thereby to invest in them.
Such a network of enduring relationships is the fundamental asset ofa successful company, since it cannot readily be threatened bycompetitors. It therefore makes the firm resilient to whatever shocks
might occur, and this is itself a source of financial confidence.
A successful and enduring economy harnesses this potential ofindividual firms on a larger scale. Through competing in a market,
firms are constantly subject to checks and balances that impose a
degree of discipline and pragmatism. Despite this discipline, theconsiderable differences in productivity between firms are
remarkably persistent. Hence, whatever is explaining them cannot beeasily imitated. Evidently, it cannot simply be a matter of hiring asmart CEO, or getting the latest technology. The persistent difference
between good performance and poor performance is that asset oftrusting relationships which cannot be transferred. Indeed,successful firms do not just compete with others, they cooperatewith them in enduring relationships, as exemplified by the valuechains and business clusters which dominate world trade. A good
current example within Europe is Airbus, which is an enduring
relationship between a group of European firms that challenged
Boeing, in much the same way that a generation ago enabled Toyota
to challenge General Motors. Disastrously, Boeing took the shortterm opportunistic route to profits, undermining the regulation ofsafety through effective lobbying. Once its new planes started tocrash, its own employees blew the whistle on its reckless strategy. It
now faces a devastating loss of consumer confidence, being forced
into distressed sales of its planes to bottom-of-the-market airlines.
14 Japan SPOTLIGHT • March / April 2021

A successful society applies these same principles at a yet larger
scale, integrating economic relationships into larger social purposes.
At any one time, around half the population is economically inactive– children and students, the retired, the sick, and the unemployed.
Most of us move through a life-cycle of all these phases, and so theeconomy has to meet these wider needs. This is the foremost task ofpublic policy. But the levels of public policy are so powerful that they
carry dangers of abuse if captured either by leaders or sub-groups of
citizens. At its best, democracy within the context of checks andbalances implied by the rule of law is superior to autocracy because
it guards against these abuses. Autocracies can sometimes work
well for a while, but being prone to abuses they suffer much wider
variations in performance than democracies. At some stage they
implode into dysfunction. Indeed, there is no successful example inhuman history of an autocracy that has sustained a good standard ofliving for its citizens. But democracy itself only works if it is built onsocial cohesion, the integration of practical and expert knowledge
that enables wisdom, the devolved agency that permits innovationand learning, and the self-sacrificing leadership that enables
common purposes to evolve. In some societies, capitalism hasderailed because these deeper conditions for a healthy society havederailed.
Nor are the goals of a society reducible merely to economic wants
and needs. A society has a culture, and many sub-cultures, which
are vehicles through which its citizens find meaning in their lives.
Again, the advantage of the devolved agency which is the corestrength of democracy is that through freedom of association it
enables the dynamism and vitality without which a society ossifies.
The supreme autocracy of Louis XIV of France devised a routine so
enjoyable that it was designated “The Perfect Day”. That routine wasrepeated daily for 150 years. Increasingly detached from the lives ofordinary citizens, this proved to be the prelude to a violent andcataclysmic revolution.

Sir Paul Collier is the author of The Future of Capitalism (2018), and Greed is
Dead (with John Kay, 2020)