Sunday, December 15, 2013

Poverty and the disablement of mutual reciprocity

Some years ago, I was talking with a volunteer colleague who personally was from what might be termed Title 1 circumstances. He had a part-time job with a media/technology company which was a real step up for him. He was eager to increase his hours to the point where he could be brought on as full-time. Because he had no car, he switched apartments so that he was within walking distance of the business. That winter, we had a terrible ice-storm which effectively shut down the city for 2-3 days. 80% of employees were unable to make it in. The business served a national client base 24/7. They could not afford any interruptions in service. My colleague, by virtue of being able to walk to work was in a position to help solve a critical problem for his manager.

As we were discussing these circumstances, my colleague and I discovered that we were viewing the situation from entirely different perspectives. He was looking at this as a major disruption and call upon him as an individual. He was concerned that he might be taken advantage of. How were they going to keep track of all his hours? Were they going to give him time and half since he was working 18 hours a day? Could he extract a commitment to move to full-time? etc. It wasn’t that he had other places to be, he was simply wanting to make sure that he would be treated fairly and trying to figure out how he could make that happen.

My comment to my colleague was that this was a great opportunity and I congratulated him. He looked at me as if I were crazy. I explained that I was taking the manager’s perspective. The manager had a major service and operational crisis to solve and no time and little flexibility to solve it. By virtue of being close, my colleague was in the unique position compared to the other employees, of being able to be part of the solution. My advice to my colleague was to step up, take all the hours he could, not get bogged down in negotiating compensation deals with his manager, but simply help his manager out. My counsel was that he might not extract all the short term value of the circumstance but that long term, he would have moved himself forwards towards his goal of full-time work.

In a discussion with my wife last night she related a very similar recent experience. Different individual, different business, different circumstances but the similarity of Title 1 context and a tactical focus on short term benefit at the cost of long term advantage.

Our nearly identical counsel was that they should look at this as a strategic opportunity and should take into account the quandary of their manager. The manager has a problem. The individual is part of the potential solution to the problem. You can either seek to exploit the manager’s difficulty by extracting as much tactical value as possible (getting overtime, focusing on ensuring that you will get paid for the extra hours, etc.). Or you can take a strategic view. Yes, get paid, but focus on making the manager’s life easier. Don’t get bogged down in wasting time in the middle of the management emergency by nailing down all the details of self-benefit.

Who will the manager favor in the future: the employee that diverted time mid-crisis to hammer out details of their reward for the necessary actions, or, alternatively, the person who simply stepped up without distraction and helped solve the problem. If you accept that it is the second person, you are acknowledging the potential pay-off of mutual reciprocity.

In this discussion I was reminded of British labor unions in the 1970-80s when I periodically lived in the UK. They had a very rigid worldview which might be characterized as 1) us (good guy laborers) against them (bad guy management) and 2) an extraordinarily narrow and legalistic interpretation of enterprise effort. If it wasn’t specified in the contract, it didn’t get done. If there were new circumstances not covered by the labor agreement, then they had to be negotiated no matter how pressing the emergency. Company after company either departed Britain or gave up the commercial ghost under these circumstances until Margaret Thatcher finally reformed the laws governing labor relations and strikes. By then the damage had been substantially done.

So is this a union mentality issue or an individual decision-making issue, or something to do with the pathology of poverty. Perhaps something of each.

It is well documented that countries with high levels of trust have much higher levels of national productivity than low trust countries. It also appears that this is true within countries by region and community and individual – those that have a high level of trust also have high productivity. This all makes intuitive sense. If you can extend a certain degree of cautious trust to comparative strangers with the anticipation that they will deliver, you can circumvent a lot of time wasting, cost generating, and efficiency damaging legal contracts, detailed action plans, etc.

Trust in turn is substantially linked with the value of mutual reciprocity. I will extend some resource or advantage to you now in anticipation that you or someone else will likewise extend such favor to me in the future. We do so absent any specific expectation of a one-for-one trade and without any formal mechanism of enforcement. As an example, I give up my seat on a train to an old lady. Not because I expect her to return the favor. Not because I benefit in any material fashion from the action. But because I anticipate that in future, when I am old and infirm, someone else will extend me a similar courtesy.

Mutual reciprocity depends on trust and trust is in turn built through the successful execution of mutual reciprocity.

But when you extend to someone a confidence in a future behavior, you are taking on a risk. Who can most afford such risks? The wealthy and secure. Who can least afford such risks? The poor and insecure.

So one of the insidious side effects of poverty might be the reduced capacity to cultivate the very action that is more likely to help lift one out of poverty – mutual reciprocity. Specifically, at the margin, in poverty, the risk adjusted rate of return of future reciprocity may be too low to outweigh the need to ensure the present remuneration. In that scenario, you end up focusing on the compensation discussion in the here and now, satisfying your own particular needs but undermining the needs of the manager in a crisis. On the other hand, if you have even a minimum level of financial cushion you can ensure that you are entirely part of the solution to the manager’s present crisis with the potential for future opportunities and advance.

This problem of circumscribed mutual reciprocity is actually probably even greater than described. I suspect that it is a reasonable assumption that the incidence rate of effective mutual reciprocity is less normatively enforced in the most marginal economic environments and that therefore the risk adjusted rate of return is indeed lower than one might expect among the top quintiles. Charles Murray’s recent Coming Apart has plenty of evidence to suggest that the upper income quintiles, through behaviors, culture, and expectations, are more effective at socially policing the effective fulfillment of mutual reciprocity. For them, mutual reciprocity works because it is made to work, and the greater the reality of mutual reciprocity for everyone, the greater is the collective (and individual) benefit.

So in poverty, with no cushion, you are likely rationally going to focus on tactically extracting all the near term benefit from a situation at the cost of sabotaging your progress against your longer terms goals. And without you or anyone else recognizing what is going on. To someone in quintiles 1 and 2 (poverty and near poverty), the actions seem perfectly reasonable. To someone in quintiles 3-5, (likely a manager), the actions seem obstructionist, self-serving and counter-productive. That seems the very definition of insidious.

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