How doing business with strangers creates the extraordinary web that is the modern economy. By Russell Roberts.
The other day I had to get some important tax receipts to my accountant. He’s in St. Louis, it was getting close to April 15, and it was very important that the papers didn’t get lost. To give my accountant plenty of time, I wanted the papers to arrive the next morning.
So what did I do? My first choice was to get on a plane and deliver the letter myself. Too expensive. Too much time.
So I did the next best thing. I went down to the airport and found someone headed to St. Louis. I told her how important it was for my accountant to have my receipts by the next day. Fortunately, she seemed really nice. She said she’d be happy to help me out. I sealed up the envelope, and she promised not to open it after I left.
I guess I’m naive. I know it was foolish to trust a stranger with something so important, but she seemed very honest. She smiled a lot, but I suppose a good thief could learn to do that.
I got a little nervous when she confessed she wouldn’t be able to actually deliver the letter herself. She had a business commitment that kept her tied up the next morning. But she promised to find some other people to make the delivery. I may be naive, but I’m not a fool. That scared me. I wouldn’t be able to meet the other people who’d be helping me out. How would I know whether they were as honest as she seemed to be? Maybe I could at least talk to them on the phone?
No dice, she said, but not to worry. She’d make sure they were good people like her—people who wouldn’t open my envelope. People who wouldn’t steal my credit card numbers off the receipts. People who wouldn’t throw the package away just to avoid the hassle of delivering it. Really, it would turn out fine. Besides, she wasn’t sure in advance who would be available to help so I would just have to hope for the best.
It seemed nuts, but by now it was getting late. I had to trust her. There was no other way to get the job done. I didn’t have any other options.
I gave her some money. She didn’t object. Maybe she had done this before.
I slept like a rock that night. I’ve always thought people are basically good.
How about you? How would you have felt that night, knowing that your crucial package was in the hands of strangers, strangers you would never see and whose honesty and unreliability were unknowable?
Maybe I should have worried more. How much did I give her? A lot less than it would have cost to get the package there myself—19 bucks. That’s all she asked for. Besides, if she pulled it off and got the package to my accountant, I’d have a story I could tell for the rest of my life.
Truth is, I never gave it a second thought. I trusted that strange woman at the airport. I’d never seen her before in my life, and I’d never see her again. But I felt somehow she’d come through for me.
And she did. I called my accountant the next day, and sure enough, he had received my letter a few minutes before 10 o’clock.
A miracle? A lucky break for me? Or maybe a dangerous lesson that might cause me to rely naively on strangers in the future?
None of the above. My trust wasn’t a miracle or a lucky break. And I’m a little less naive than you might think.
That stranger I entrusted with my financial secrets was standing behind a FedEx counter wearing a FedEx uniform.
It changes everything doesn’t it? You go into a FedEx, give a stranger $19, and you can walk out without a worry in the world, knowing that your package is going to get there by 10 the next morning.
I never worried that the woman behind the counter might open the package after I left the office to see what I was sending or enjoy its contents. I didn’t worry that the man or woman who would touch the package next might open the package to see what was in it. I didn’t worry that the myriad of people who might come into contact with my package would check it out to see if there was anything in it worth stealing.
I also never worried for an instant that one of the people who would come into contact with my package might just decide it was too much trouble to deal with and throw it away.
Total strangers I would never see. What word best describes my lack of worry? Was it trust? Faith? Confidence? And what was the source of my contentment as I left my package behind?
It wasn’t trust. The chain of people who interacted with my package was long, and there was no way to interview each of them to explore if they were reliable. So how could I trust them? Never saw them. Never would. The woman behind the counter seemed like a decent enough soul. I trusted her in some sense. But it’s certainly the wrong word to describe her coworkers who brought my package safely to St. Louis. I can’t say I trusted them. I knew nothing about them.
Faith? Seems too open-ended. Faith comes from having used FedEx before and knowing that it always gets the job done. There’s a little of that. But I wasn’t even worried the first time I used FedEx.
Confidence seems like the right word. Confidence born of an understanding of how the division of labor works in a modern economy. What Hayek called the extended order of human cooperation.
You can see the miracle of the modern economy if you contrast FedEx with a different system, one where I actually find a real stranger, who seems honest, down at the gate at the airport on the way to St. Louis. Here, I say. Take this money and this package. And don’t worry if you need some help taking the package the last few miles. Take it part of the way, and give the package and some of the money to the next person on the promise that each person will keep the chain unbroken.
Who could be confident that such a gambit would succeed?
So what’s different about FedEx? On the surface, there’s no difference. I’m expecting somehow that a lot of strangers are going to come through for me and keep their promises. Yet everything is different.
When I use FedEx there are consequences of failure if the strangers let me down. There are feedback loops that reward excellence and punish dishonesty or failure. These feedback loops create accountability.
FedEx tries to hire honest, pleasant people who smile when you talk to them. They fire rude people who consistently lose packages or steal them. It honors and rewards people who do their job well. And why does FedEx try so hard? Part of the answer is reputation. But why does FedEx try so hard to keep its reputation intact? Competition is part of the answer. But there is more to it as well.
Even those feedback loops that keep the FedEx employees honest work best when people feel guilty about being thieves and slugs. Does capitalism work best when people are basically honest, or does capitalism help create the virtues that make it work well? Probably both.
The system works so well that we hardly notice it or appreciate the marvel of it. The smiling FedEx employee is always behind the desk waiting to take my package onto St. Louis. A stranger delivers my paper every morning to my driveway. I don’t even know what he or she looks like. Strangers built my car, wove my clothes, and filled the prescription for the antibiotic that cured my wife’s pneumonia this past winter. A myriad of strangers working together in some research lab in a location unknown to me discovered that antibiotic.
We think nothing of it. It has become natural to us to rely on those we do not see and cannot examine for their honesty, reliability, or excellence. Yet, most of the time, this extended order of human cooperation fulfills our expectations that the products and services we want will be waiting for us when we want them.
We understand the role of competition in sustaining this system. Having alternatives helps create accountability and raises the costs of failing to meet our expectations. But we often fail to understand or notice the resulting cooperation among strangers whose coordinated actions within and across companies serve us.
Surprisingly, relying on strangers beats relying on friends. We don’t have enough of the latter if we want to enjoy the standard of living with all of its material and nonmaterial satisfactions. Relying on friends or relying only on our family would lower our standard of living back to the level of subsistence. Self-sufficiency is the road to poverty.
Relying on strangers also frees up our friends to specialize in being friends and do what friends do best. I don’t want to buy a shoulder to cry on from the low-cost seller behind a counter. I want friends and families to give that out of love. But my friends and family have more time for comfort and delight because the extended order of human cooperation out in the marketplace means I’m not expecting them to sew my clothes or forge a car for me.
Relying on strangers creates the extraordinary web of cooperation that is the modern economy. A world where the division of labor and specialization—the fruits of trade and trust enforced by the feedback loops of price, profit, and competition—can let me send a package from Washington to St. Louis for about an hour’s worth of work for the average American worker.
What a lot of confidence can be bought for only $19. And this marvel of cooperation works even though most of us are oblivious to it and know not how it works. But appreciating the marvel may help us remember the value of the system of prices and profits that holds it together.
Russ Roberts is the John and Jean De Nault Research Fellow at the Hoover Institution. He hosts EconTalk, a weekly award-winning podcast. His Keynes-Hayek rap videos (created with John Papola) have been viewed more than 6 million times on YouTube. His blog is Cafe Hayek. His latest web-based project is The Numbers Game, on which he discusses data and charts using annotated videos.
Roberts is the author of The Price of Everything: A Parable of Possibility and Prosperity, The Invisible Heart: An Economic Romance, and The Choice: A Fable of Free Trade and Protectionism. The Choice was named one of the top ten books of the year by Business Week and one of the best books of the year by the Financial Times.
Roberts has taught at George Mason University, Washington University in St. Louis, the University of Rochester, Stanford University, and UCLA.
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