Capitalism

Book: 23 Things They Don't Tell You About Capitalism | Author: Ha-Joon Chang

Sponsors: Mohan Balachandran, Carla Harris

Brief Author: Josh Rohleder (jrohleder@tamu.edu)

Summary:

It is said that “capitalism is the worst economic system except for all the others,” a concept that Ha-Joon Chang embraces fully in his book 23 Things They Don’t Tell You About Capitalism. Capitalism has done much for the world, providing decades of economic growth and giving humanity the highest standard of living it has ever seen, but Chang argues that the dogmatic free-market version of capitalism that has dominated the last thirty years leaves much to be desired, and is the culprit for slowing growth, financial crises, growing income inequality, and many other ills facing the world today. The idea that markets, if left alone, will produce the most efficient and just outcome is simply not feasible, and has not delivered on its promises. In 23 short essays, Chang explores various aspects of how capitalism really works in today’s society and presents ways in which it can be made to work better.

One pillar of capitalist ideology Chang attacks is the notion that a “free market” exists at all.  Every market, he argues, has some rules and boundaries that restrict freedom of choice.  Whether a market is “free” or not is in the eye of the beholder. Child labor laws, for instance, are a restriction on markets, but because we agree with them morally, we tend to disregard the intrusion. Differences in the understood levels of government restrictions between countries lead to imbalances and inequities such as workers in China receiving low wages and unacceptable working conditions. Government regulation is also present in ways that are vital to the very functioning of markets, including patents, copyrights, and the enforcement of contracts.  It is generally believed that government interventions such as these are within the acceptable boundaries of “free markets,” but Chang argues that the very existence of these boundaries proves that the very notion of a free market is rife with ambiguity and that striving toward a nebulous idea of a perfectly government-free market is counterproductive.

Chang gives several examples of free market policies actively damaging the global economy. For example, contrary to most narratives, growth in poor countries has actually slowed as a result of recent market liberalization policies.  Removing government support prevents the flourishing of new industries in poor countries, and many forget that government subsidies played a large role in the early development of now-rich countries like the US. The free market idea that companies should be run purely in the interests of shareholders is also damaging. Shareholders are often the most transient stakeholders in a business, and their interests are often not in line with the broader economy.

Deference to shareholders, Chang argues, has led to too much focus on short term profits at the expense of long term growth, and an undue preference toward cash distributions rather than productive reinvestment.

A major reason why free markets fail to work as advertised is that human rationality is severely limited. While people in theory always act in their best interests – and thus the best interests of the economy as a whole – in practice, this is far from the case. In instances where people will act in predictably irrational ways, it can be beneficial for the government to intervene. Chang’s biggest example of this is financial regulation.  Humans do not have the capacity to rationally assess complex financial instruments and thus, without regulation, are prone to creating unsustainable situations such as those that preceded the 2008 financial crisis.

Chang’s essays also explore the failures of so-called “trickle-down economics” and the economic benefits of an increased welfare state. Rather than providing a disincentive for work, he argues, welfare spending provides a backstop that actually encourages risky business activity, as individuals are less afraid of a huge decline in living standards should their risks not pay off.  A strong welfare state is like bankruptcy in this regard – it provides security in the event of failure as well as promotes second chances.

Going forward, one question remains: how do we fix the economy? The truth of the matter is that there is no easy fix; however, the following eight principles should guide our thought process when redesigning and rebuilding our economic system.

1.   Capitalism is the best economic system;

2.   We should build our new economic system on the recognition that human rationality is severely limited;

3.   We should build a system that brings out the best, rather than worst, in people;

4.   We should stop believing that people are always paid what they ‘deserve’;

5.   We need to take ‘making things’ more seriously;

6.   We need to strike a better balance between finance and ‘real’ activities;

7.   Government needs to become bigger and more active;

8.   The world economic system needs to ‘unfairly’ favor developing countries;

The past three decades have shown us that current free-market economics do not work. If we do not make immediate and drastic changes to the current conditions of billions suffering in poverty and insecurity, especially in developing countries, we will inevitably meet the same global disaster we witnessed in 2008. Difficult choices may lay ahead for the global economy, but with change comes hope.

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CLASSIC BRIEF BY: Joshua Rohleder

EXECUTIVE SPONSORS
Mohan Balachandran, TRS | Carla Harris, Morgan Stanley

INTRODUCTION

“Capitalism is the worst economic system except for all the others.”

– Ha-Joon Chang, 23 Things They Don’t Tell You About Capitalism

The current global economy is a mess. Unprecedented amounts of fiscal and monetary stimulus are currently preventing the 2008 financial recession from turning into a total global collapse; a false recovery based on loose monetary policies has led to new financial bubbles; and most importantly,  the real global economy is starved of money as can be seen throughout the Eurozone. This global “failure” has created huge budget deficits that will eventually force governments to reduce, if not cut, public investments and welfare entitlements significantly – negatively affecting economic growth, poverty, and social stability.

This  catastrophe,  Chang  argues, has ultimately stemmed from the free-market capitalism ideology that has dominated the world for the past 30 years. The idea that markets, if left alone, will produce the most efficient and just outcome is not feasible and the results of such policies has been shown to be the polar opposite of what was originally promised: slower growth, rising inequality and heightened instability in nearly all countries. The problem, however, is that in most rich countries, such as the US and Germany, these “failings” have been masked by enormous credit expansions which have in essence negated any economic decline. Furthermore, the few developing countries that have managed to produce quality growth since 1980, such as China and India, have done so by refusing to introduce full-blown free-market policies into their economy.

That said, Ha-Joon Chang is not a socialist nor is his book 23 Things They Don’t Tell You About Capitalism an anti-capitalist manifesto. Rather, it is an attempt to educate the non-specialist reader about the ‘truths’ of neo-liberal economics. Ha-Joon Chang is currently an economics professor at Cambridge University where he is considered one of the leading heterodox economists of our time. He has consulted for such entities as the World Bank, EIB, and UN, and has written eleven books, many to controversial, yet high praise. 23 Things They Don’t Tell You About Capitalism is a collection of 23 short essays in which Chang argues that while capitalism is “the best economic system humanity has invented,” the free-market version that has dominated the past three decades has proven unsuccessful, if not an utter failure. The book is an attempt to equip the reader with a basic understanding of how capitalism really works in today’s society and present ways in which it can be made to work better. However, Chang points out that many of the issues discussed in this book are not simple problems and as a result, do not have simple answers. Therefore, while we may not be able to find an immediate solution, it is our duty as active economic citizens to confront these issues in order that we might first understand them before ultimately enacting changes for the betterment of society as a whole.

THERE IS NO SUCH THING AS A FREE MARKET

What They Don’t Tell You

Free markets do not exist. Every market has some rules and boundaries that restrict freedom of choice. As Chang puts it, “a market looks free only because we so unconditionally accept its underlying restrictions that we fail to see them.” Free-market proponents attest that when a government interferes with market participants, it prevents resources from being used in their most efficient manner. For example, placing a cap on housing rents would cause landlords to lose incentive to maintain properties. The problem here is that ‘free’ is a highly subjective word; how ‘free’ a market is cannot be objectively defined. Government has, is, and always will be involved in markets whether it be for social, protective, or regulatory reasons. Government involvement in markets is analogous to performers who fly through the air on piano wires: while necessary, we choose not to see them. Such things aschild labor laws and slavery, while obviously morally wrong, are restrictions placed on the “free market” by the government.

Is Free Trade Fair?

In almost all cases, regulations imposed by the government (piano wires) are only ‘noticed’ when we either do not endorse the moral values behind them or they negatively affect our financial state. For example, let us examine the issue of labor laws. The underlying dispute is nothing more than a moral question of free trade vs. fair trade. In China, workers are often paid unacceptably low wages by global standards to work in inhumane conditions for long hours. According to free-market economics, this should be welcomed, as it is the standard dictated by the market. Until the workers, as a collective body, choose not to go to work thereby forcing their employer to improve conditions in order that the company might stay profitable, conditions will remain at a minimum. While immoral, this ultimately allows China to create an unfair price advantage over all other countries. Therefore, the US and other developed countries impose artificial barriers such as restrictions on import of ‘sweatshop’ products under the premise that products are obtained from unjust and unethical means. While most Americans would agree with this regulation, the fact remains; according to free-market economics, government does not have the right to dictate wages and working conditions and therefore cannot place any restrictions on Chinese ‘sweatshop’ imports if markets are to grow in the most efficient manner. However, this still leaves us with one final question: at what point do free markets become morally unethical?

To Define Or Not To Define

If we were to truly live in a free market, such inherent protections as patents, copyrights, and lawsuits would not exist. After all, it is not the governments place to say who can or cannot use an intellectual idea. A truly free market would allow creative destruction to produce the highest quality product based on an idea in its most efficient manner. In reality, this is not possible; markets and society would fall into chaos without some form of order, protection, and regulation. Furthermore, markets are ever-evolving systems (i.e. emerging markets) that require ever- evolving levels of protection and regulation. The process of re-drawing market boundaries, then, is a continuous and ever-evolving procedure that directly conflicts with the free-market idea that market boundaries can be scientifically defined. Realizing that markets are ambiguous and not objective leads to the fact that economics and markets are not a science but rather a subjective political exercise. This, in turn, gives rise to the notion that market objectivity is nothing more than a simple illusion upon which free-market capitalism is founded.

FREE MARKET POLICIES ARE BAD FOR THE ECONOMY

Poor Countries Can Never Become Rich

According to neo-liberal economists, countries that have tried to develop through state interventions such as government subsidies and state ownership have produced stagnant, if not negative, growth. Thankfully, though, since the 1980s, these countries have switched to free- market policies that have helped them to mature in much the same way as rich countries such as Britain and the US. However, contrary to popular belief, the performance of these developing countries during state-led development was superior to what has been achieved in recent decades (3% income growth per capita in the 1960s and 1970s to 1.7% between 1980-2000). Moreover, almost all of today’s rich countries, albeit with a few exceptions, have become rich through a combination of protectionism, subsidies, and government involvement; in essence, everything opposite the free-market policies they promote. For example, Alexander Hamilton, while attempting to develop an economic strategy for the United States, wrote Report on the Subject of Manufactures, in which he argues that ‘industries in their infancy’, such as those in the US, need to be protected and nurtured by government until they can stand on their own feet. Thus, neo- liberal economists cannot argue that developing regions should adopt free-market economics when the US, the pioneer of the free-market, has already proven that protectionism is the key to growth. With examples such as Latin America where growth rates have dropped to a staggering 1.1% between 1980 and 2009 from 3.1% in the ‘60s and ‘70s, it should come as no surprise that free-market policies have made few countries rich today and will make few countries rich in the future.

Americans Just Live Better… Or Do They?

According to free-market economists, the US has enjoyed the highest standard of living in the world due to the superiority of the free-market system. However, due to the high level of inequality plaguing the US, this statement does little to accurately portray average living conditions within the country. In order to truly understand the living conditions in the US, we must look at three things: (1) health indicators and crime statistics; (2) purchasing power parity (PPP); and (3) income per hours worked.

First and foremost, the US ranks thirtieth in the world in overall health statistics. Furthermore, the US has eight and twelve times more people in prison than Europe and Japan, respectively. These two statistics support the notion that a much larger portion of the US population is underclass and that the US has one of the greatest levels of living inequality in the world. While the US may have the eighth highest per capita income in the world, the reality is that this income is disproportionately distributed among a select number of people, leaving everyone else to live at a much lower standard.

Secondly, the fact that the US’s PPP income is roughly equal to its market exchange rate income is proof that the higher average standard of living in the US is built on the poverty of many. While people in the US have the ability to buy many more goods and services with their money than someone in say, Switzerland, this is due to the cheaper cost of production and services that result  from higher immigration levels and poorer employment conditions. The lack of job security, welfare support, and unionization in the US, as compared to its European counterpart, explains how the US can maintain one of the highest PPP incomes in the world, thus giving the illusion that Americans have the highest standard of living in the world.

Last but not least, it should be noted that Americans work over ten percent longer than their European counterparts and nearly thirty percent longer than the Dutch and Norwegians, all of whom have higher per capita incomes than the US according to the World Bank. An argument can be made that this increase in work hours is not due to an enjoyment of the work, but rather a necessity to work longer. With higher competition due to job insecurity and lack of a welfare provision, workers may feel that they are required to work long hours in order to maintain their current positions in a company. Therefore, it would follow that the longer work hours in the US actually contribute to the reduction in average living standards in the US.

Nevertheless, there is no exact science to compare living standards across countries, and while different people will always have different views on how to compare living standards, non-income dimensions such as those discussed above should not be ignored if we are to truly build a country where people genuinely ‘live well’.

Companies Should NOT Be Run In The Interest Of Their Owners

Shareholders own companies. The free-market idea behind this is that companies work in the interest of their owners, therefore, companies work for shareholder interests, which are profits. By maximizing profits, a company is also maximizing its social contribution in the most efficient manner possible. The problem with this belief though, is that shareholders are the most liquid of the company owners, and therefore care the least about the long-term future of the company. In many cases even, shareholders prefer corporate strategies that maximize short-term profits, thus maximizing dividends and share value. These strategies are rarely in the best long-term interest of the company. Thus, running a company for the shareholders often reduces its long-term growth potential.

Modern capitalism can trace its roots to the idea of limited liability.  Without the personal protection afforded to entrepreneurs by limited liabilities in the early 1900s, a successful global economy based on the roots of large corporations would never have emerged. However, without the threat of unlimited loss, people no longer had the same driving incentive to make then company profitable. This gave rise to two new things: the professional manager and the idea of shareholder value maximization. The problem with shareholder value maximization, though, is that to maximize value, a company must use profits to pay shareholders or buy back its own shares at the expense of reinvestment in growth opportunities. The problem with public shareholders can be traced to the lack of risk involved with owning the company. Running a company in the interest of the floating shareholder in not only unfair but also inefficient to both the global economy and the company itself. While the free-market belief in limited liability has allowed for the amassing of huge amounts of capital and economic growth, it has also allowed for the severe restriction in corporate and market potential; and until we allow long-term stakeholders such as governments and state-owned banks to have significant voting rights within limited liability corporations, markets will continue to underachieve.

HUMAN RATIONALITY IS SEVERELY LIMITED

We’re Not Smart Enough To Leave Markets Alone

Free-market economics state that investors are rational, and as such, act only in their best interest and thus in the interest of the economy as a whole. Any actions by an outside force (government) to restrict these choices will undoubtedly produce inferior results. The problem here is that people do not necessarily know what they are doing, let alone what is best for them. This is due to the presence of a factor termed by 1978 Nobel Prize winner Herbert Simon as ‘bounded rationality’. It is the idea that our minds have a limited ability to process certain amounts of information at one time and we are only able to make rational decisions by subconsciously restricting our options in order to reduce the complexity of the problem at hand. Thus, in something as complex as the financial market, the government must act as the subconscious regulator for all. This is not because governments know best, but rather because we cannot begin to comprehend problems within the market unless our choices are first minimized.

Even  ifinvestors are considered rational,  it is still possible for rational investors to act irrationally, and in doing so, make choices that hurt both themselves and the market. It is the government’s job, in this situation, to reduce the possibility that things go wrong based off these decisions in order that the market as a whole might be preserved. The problem with the free- market ideology is not that individual rational actions can lead to a collective irrational outcome (market failure), but rather that we, as investors, are not even rational to begin with. Furthermore, if we are to believe that the free-market rationality assumption no longer holds true, we must begin to rethink the role of governments within the market, specifically the need for regulations to a certain extent.

Government Regulations Are Good

Taking Simon’s theory of bounded rationality to be true, we can now see that government regulations work not because the government knows better than the regulated, but rather because they limit the complexity of the activities, which enables the regulated to make better decisions.

Taking the 2008 world financial crisis as an example, our ability to make good decisions had become overwhelmed due to the fact that our deregulated financial sector had been allowed to create too many complex financial instruments that could not be fully understood. Therefore, if we are to avoid another financial meltdown like that in 2008, we must severely restrict freedom of action in the financial market. Complex financial instruments such as financial derivatives should be banned until they can be explicitly shown to benefit society in much the same way that drugs are approved by the FDA. Unless we humbly realize our limited mental capability and deliberately restrict our choices by creating restrictive regulations, we will never be able to cope with the complexities of the financial market.

Markets Are Too Efficient

The problem with markets today is that they are too efficient. According to free-market economists, the efficiency of its financial markets is the key to a nation’s prosperity. However, with the rise in financial ‘innovations’ and new complex financial instruments, the financial sector has become more efficient at generating short-term profits rather than long-term gains. These ‘innovations’ have made the overall economy much more unstable and have led to a speed gap between financial investments and real sectors that are looking to produce long-term development. This gap, which has come about due to the ability of investors to respond too quickly to change, must be reduced by deliberately making markets less efficient if we are to avoid a complete financial collapse.

Mind The Gap

Recent history has shown us that financial deregulation is very bad for a country’s economy. Examples  such  as  Iceland  and  Ireland,  where thecountry attempted to become a regional financial hub through a strategy of financial deregulation, show that while deregulated finance may allow for quick and efficient economic growth and expansion in the short term, the result is always the same: total economic collapse. With the 2008 global collapse, the IMF estimated that Iceland’s economy shrank by 8.5% in 2009 alone (Ireland’s contraction was a mere 7.5%).

The second reason for the 2008 financial crisis resulted from the intense financial deregulation that occurred in the early 2000s. The problem was that the financial sector became so attractive so quickly that many companies with no ties to the financial sector, such as GE and GM, became dependent on their newly expanded financial arms to stay profitable. For example, in 2003, 45% of GE’s profit came from GE Capital while a staggering 80% of GM’s profits came from GMAC. This financial boom led to an extremely disproportionate growth in the financial sector as compared to its underlying economy. In 2007, it was not out of the ordinary for a country’s financial assets to be 500 to 900% of its GDP. The result of this disproportionate growth was an unsustainable financial sector balancing on roughly the same foundation of real assets as when it started.

Still, this is not to say that the financial sector and financial derivatives are bad, but rather that they need to be regulated. Financial capital is vital to developing capitalism; it gives liquidity to non-liquid industrial capital. However, it is this same liquidity that that makes it so dangerous for the rest of the market. Having the ability to move large amounts of capital in short periods of time fuels impatience, which, in turn creates  irrational movement within the market and economic instability. Furthermore, long-term investments are cut down to satisfy short-term ‘impatient’ capital. The cumulative result of all these actions is ultimately a slowing of economic growth.  Therefore, it can be seen that free-market financial deregulation does not actually produce faster growth as promised, but rather, yields the complete opposite.

That said, the speed gap between finance and the real economy should not be reduced to zero. The entire purpose of finance is that it can move faster than the underlying real economy. However, if the financial system moves too fast, i.e. too efficiently, it could derail the real economy. Therefore, government must place regulations on the financial industry in order to maintain a feasible balance between finance and the real market so as to allow for long-term investments while still providing the necessary level of liquidity.

MAKING RICH PEOPLE RICH DOESN’T MAKE EVERYONE RICH

Trickle-down Economics Has Failed

Free-market philosophy states that rich people are responsible for investing in and creating jobs. It is their insight and knowledge that allows them to spot and exploit market opportunities, thus creating a larger overall economy that benefits everyone. There are two serious problems with this argument. The first is that giving the rich a larger slice of the pie does not in fact make the entire pie bigger; and secondly, top-end wealth creation rarely trickles down to the poor in an economy. History has shown that the dreaded ‘over-taxation’ of the rich has not destroyed capitalism as would be expected by trickle-down economics, but rather has produced stronger growth. For example, following the Second World War, between 1950 and 1973, the US experienced rapid growth in progressive taxation and social welfare spending; yet it still had economic growth of roughly 3%, which it has since been unable to match.

Since the 1980s, most rich countries have touted a program of upward income redistribution by trimming the welfare state and increasing financial deregulation. These changes have created huge speculative gains for companies as well as astronomical salaries for CEOs and managers. They have allowed companies to produce massive profits by exploiting monopoly powers and decreasing job security, which have all acted to put downward pressure on employee wages. This pressure has resulted in a major increase in income inequality throughout the rich countries. The EPI estimates that between 1979 and 2006, the top one percent of earners in the US more than doubled their share of national income, rising from 10% to 22.9%. The ILO found that in 41 of the 65 richest countries, inequality rose between 1990 and 2000. This income inequality is proof that trickle-down economics does not work and is nothing more than a simple upward redistribution of income, rather than a way to make everyone richer.

Trickle-up Economics Will Work

All  theupward  redistribution  of  wealth  and  inequality that  has  resulted  from  trickle-down economics may have been justifiable had it led to overall accelerated growth. The problem, however, is that it has done the complete opposite. According to the World Bank, since the 1980s, global economic growth has slowed to a rate of 1.4% per year from over 3% in the 1960s and ‘70s. In short, we have given the rich a bigger portion of the pie without actually increasing the  rate  of  growth  of  the  entire  pie  as  was  originally promised  byfree-market  advocates. Consequently, there are two ways to fix this problem.

The first solution is for government to create regulations that require the wealthy to use a certain percentage of their income on investments. A major flaw in capitalistic trickle-down economics is that even when upward income redistribution creates more wealth, there is no guarantee that the poor will benefit from those extra incomes as the wealthy are not required to use their extra income for investment opportunities. Since 1980, the investment-to-national-output ratio has continuously fallen, which means that regulations must be put in place to force a downward redistribution of wealth. This can come in the form of minimum investment to income ratios as described above or an increase in taxes and transfer fees. In essence, if we want our national economy to grow, we are going to need a governmental pump of the welfare state to make the water at the top trickle down to everyone else in any significant quantity.

The second and best way to boost the economy is to directly redistribute wealth downward, as poorer people tend to spend a higher proportion of their income. However, this can be a very fragile mechanism, and as such, must be done in the right way and at the right time. The benefits of increasing welfare spending far outweigh the so-called ‘benefits’ of trickle-down economics. For example, additional discretionary income may encourage lower level workers to invest in education and health, which in turn will raise productivity and ultimately economic growth. Furthermore, greater income equality will lead to more social peace, thus reducing industrial strikes and crime rates, thereby encouraging investments, and ultimately, total wealth.

Therefore, history has shown us that upward redistribution of wealth will not accelerate investments and growth. It will take either public policy measures forcing the rich to deliver greater amounts of investments or the development of a stronger welfare state to provide downward redistribution of wealth if we are to produce any sort of sustainable economic growth in the future.

BIG GOVERNMENT IS BETTER

A Welfare State Is The Best State

Free-market economists tout that big government is bad for the economy. In their opinion, welfare makes poor people lazy and deprives the rich of an incentive to create wealth thus creating a less dynamic economy. However, the fact of the matter is that a well-designed welfare state can actually encourage people to take chances with their jobs and be more, not less, open to change. For example, large welfare states, such as Sweden and Norway, where people were not worried about a decline in living standards if they lost their job were able to grow faster than the US due to their lack of trade protectionism, which allowed foreign competition to create the most efficient  method  ofproduction. Still,  not  everything  about  welfare  is  good;  welfare  can stigmatize recipients if not applied in the correct fashion. That is why the key to welfare success is creating universal programs, such as those seen in Sweden and Finland, rather than targeted programs like those seen in the US.

Welfare is a lot like bankruptcy; it gives people a second chance, thereby making them more open to change and risk. This risk causes people to be bolder in their initial career choices and more open to job changes later on in life, thus creating a much more dynamic economy. If we remove this protective ‘netting’, people often become ingrained from an early age in the ‘safest’ profession; that is, whichever career will provide them the best pay with the most job security. What ends up happening, as seen with the medical profession spike in South Korea over the last fifteen years, is that people end up going into a career they do not love, and as a result, hurt both the profession they choose to go into and the one they chose not to go into. This is a lose-lose situation for both the individual and the economy as a whole. Welfare gives people something free markets can never give: security; and it is this security, which makes a welfare state the best choice for creating an efficient and dynamic global economy.

The Government CAN Pick Winners

A second point free-market advocates make is that large governments do not work because they cannot make informed business decisions and ‘pick winners’ through industrial policy. What these neo-liberal advocates do not tell you is that having more detailed information does not guarantee better decisions and what is good for an individual firm might not be as good for the national economy as a whole. Therefore, the government picking winners against market signals can often improve national economic performance, especially if done in close collaboration with the private sector.

While history hasshownthatgovernmentcan  pickspectacular losers,  suchasBritainand France’s ill-fated venture into Concorde, it has also shown that it can, and more often than not, does pick winners. For example, in 1965, South Korea hatched a plan to build an integrated steel mill despite not producing a single raw material for the process within the country. While this plan seemed incredibly outlandish and kept almost every investor from lending the country money, South Korea was able to garner enough funds from Japan’s reparation payments to fund the steel mill project. Beginning production in 1973 under the newly created state owned enterprise POSCO, the steel mill quickly became the most cost-efficient producer of low-grade steel in the world, and today is the fourth-largest steel producer in the world.

Thus, the question is not about whether government can pick winners, as they obviously can, but how to improve their percentage of winners. Governments, and private firms, will fail in picking winners occasionally; it is in the very nature of risk-taking entrepreneurial decisions that they do fail. However, by minimizing this failure, national economies will be able to grow at much faster rates. To do this will require integration of both the private and public sector working seamlessly for the betterment of the national economy as a whole. The reality is that if we remain blinded by the free-market ideology that tells us that only the private sector can pick winners, we will end up ignoring a huge range of possibilities for economic development through public leadership and public-private joint efforts.

CONCLUSION

Going forward, one question remains: how do we fix the economy? The truth of the matter is that there is no easy fix; however, the following eight principles should guide our thought process when redesigning and rebuilding our economic system.

1.   Capitalism is the best economic system;

2.   We should build our new economic system on the recognition that human rationality is severely limited;

3.   We should build a system that brings out the best, rather than worst, in people;

4.   We should stop believing that people are always paid what they ‘deserve’;

5.   We need to take ‘making things’ more seriously;

6.   We need to strike a better balance between finance and ‘real’ activities;

7.   Government needs to become bigger and more active;

8.   The world economic system needs to ‘unfairly’ favor developing countries;

The past three decades have shown us that current free-market economics do not work. If we do not make immediate and drastic changes to the current conditions of billions suffering in poverty and insecurity, especially in developing countries, we will inevitably meet the same global disaster we witnessed in 2008. Difficult choices may lay ahead for the global economy, but with change comes hope.

The Hidden Brain

Book: The Hidden Brain: How Our Unconscious Minds Elect Presidents, Control Markets and Save Our Lives | Author: Shankar Vedantam

Sponsors: Gregory Fleming, Carla Harris, Bob Prince

Brief Author: Paul-Marc Schweitzer (pmschweitzer1@gmail.com)

Summary:

It is untrue to assume that your “conscious brain” is naturally fully active when making critical decisions.

In recent decades, extensive research has been done studying human beings’ subconscious abilities. Specialists from all disciplines have experimented and attempted to identify the specific features of our unconscious minds. Two forces are in action in people’s brains: conscious mental power and unconscious thinking. Society’s tendency for rationality has pushed people to believe that our subconscious operates only for tasks of low importance and constant repetition, which is partially true, as we rarely consciously breathe for instance. However, surprising events and related studies have pushed journalist Shankar Vedantam to wonder whether unconscious forces are also driving more significant behaviors.

In The Hidden Brain: How Our Unconscious Minds Elect Presidents, Control Markets and Save Lives, Vedantam draws on the work and insights of hundreds of experts in the field to explain everyday problems that cannot be solved in laboratories. He uses real life examples to demonstrate one major aspect of unconscious thinking: its tendency to instill unconscious bias in our minds. This concept can be observed when people’s actions are at odds with their intentions – they are influenced to act a certain way by forces they are unaware of. Vedantam brings to light a behavior that people hardly ever notice, which makes his piece of writing all the more remarkable.

Vedantam introduces the concept of the Hidden Brain, shorthand for a range of influences that manipulate people without their awareness and mold their personalities in conjunction with their “conscious” brains. The ideas in his book are organized in concentric circles, with early chapters relating stories about small and sometimes humorous aspects of the Hidden Brain, while later chapters tackle bigger issues. Overall, he presents a succession of anecdotes, showing the Hidden Brain at work, all with particular learning outcomes.

Unconscious biases, developed in the Hidden Brain, affect people’s personalities from the very first years of their lives by creating linkages and mental associations. They create feelings of comfort and discomfort, inspire racial stereotypes and sexism, influence table manners and judicial decisions, and even push people to act a certain way in dramatic events. People’s Hidden Brain has a major impact on interpersonal relationships; it creates close human connections that sometimes lead to extremism, allows politicians to manipulate voters’ emotions, or even influences young children’s opinion on race.

It is hardly conceivable that our entire society, which is based on the assumption that most people think consciously and rationally at all times, can be changed to reflect the impact of our Hidden Brain. However, recognizing its existence is a crucial step. The unconscious mind influences people in a very subtle and mundane way, making it difficult for human beings to even grasp the reality of its presence. Yet, unconscious biases are responsible for significant human behaviors affecting us sometimes positively, and other times negatively. Understanding the Hidden Brain will make us more successful, tolerant, and efficient; but most of all, it has the potential to make us better people.

My View

Shankar Vedantam brings to light disturbing social behaviors where biases seem to be dictating our actions and beliefs. While the subconscious was introduced by renowned French psychologist Pierre Janet all the way back in 1889, it has remained a theoretical and abstract concept, and lacks tangible applications in real life. I was fascinated by the way Vedantam was able to link prejudice- driven behaviors to unconscious forces, rather than giving in to the common belief that biases are consciously formed and fully understood.

The author points out that history, society, education, and unique stories are the reason why our minds shape simplistic explanations for most of these behaviors. However, he fails to provide biological and physiological evidence to back up his argument. Also, while the stories he shares and the concerns he raises are fascinating, he only gives perfunctory attention and brief solutions to the underlying moral issues.

Vedantam hopes that we can bypass the unconscious mind and let reason guide our behaviors. While I agree with the learning opportunities lying in “making the unconscious conscious,” I find his view somewhat idealistic and hardly implementable. Rather, I believe in Freud’s psychoanalytic ideal of acknowledging hidden drives and channeling them productively.

About the Author

Shankar Vedantam is currently a science correspondent with the National Public Radio (NPR). He focuses on human behavior and social sciences, and how research in those fields can lead to unusual and interesting ways to think about the news. Previously, Vedantam worked ten years as a reporter and columnist at The Washington Post. He has been recognized with numerous journalism honors throughout his career and served as a fellow at the Nieman Foundation for Journalism at Harvard University, where he also worked as a lecturer. His non-fiction book The Hidden Brain: How Our Unconscious Minds Elect Presidents, Control Markets, Wage Wars and Save Our Lives was published in 2010.

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CLASSIC BRIEF BY: Paul-Marc Schweitzer

EXECUTIVE SPONSORS

Gregory Fleming, Morgan Stanley | Carla Harris, Morgan Stanley | Bob Prince, Bridgewater Associates

 

“Extraordinary people are not extraordinary because they are invulnerable to unconscious bias. They are extraordinary because they choose to do something about it.”

In The Hidden Brain, Shankar Vedantam draws on the works of many successful and renowned experts in the study of subconscious thinking, ranging from psychologists and sociologists to medical specialists, such as neurologists. Throughout his book, he applies scientific data and research to everyday events triggering readers’ curiosity. Vedantam’s subject of interest digs into the underlying impact people’s unconscious minds have on their behaviors and focuses on a concept denoted as “unconscious bias.” Often, people’s actions are at odds with their intentions and the assumption that human behavior is the product of knowledge and conscious intentions is incomplete. Vedantam introduces the concept of the Hidden Brain, which remains a “deliberate decision to personify the hidden forces that influence us,” but does not aim to provide physiological justification. The Hidden Brain is responsible for people’s range of influences that manipulate their actions without their awareness. In a lot of ways, Vedantam’s views may seem provocative and hard to comprehend, simply because modern society relies on the assumption of human rationality; yet, the stories he relates are intriguing and challenge our thinking.

The Hidden Brain’s main task is to provide people with mental shortcuts or heuristics, which often is very beneficial to their lives. While reading these lines, your Hidden Brain is taking visual images of each word, translating symbols into recognizable letters, assembling them into words and sentences, and leading to a meaningful message; it does this all without your conscious attention. Scientists have long known about subconscious thinking and none of it seems disturbing at first glance; it allows for our continuous breathing, heart beating, and dreaming.

We assume that our conscious minds automatically turn on when we face decisions of greater importance, which is false. To illustrate this point, Vedantam narrates the story of a young woman from Massachusetts who suffered rape in the summer of 1986. While the tragic event was happening, she “swore to herself, I am not going to forget his face,” and made a point to memorize details about the man. Six months later, the police provided her with a set of photos of suspects they had identified. She cautiously examined them and requested to hear the suspect’s voice. She told the police she was one hundred percent sure he was the rapist. The convicted man appealed the judicial decision, but was still sentenced to life imprisonment, and the victim went on with her life with an uneasy feeling. Fourteen years later, the lady received a letter explaining that new evidence had come to light in her raping case; her anxious feeling came back and she started doubting her initial judgment. She accepted to meet the initially convicted man, and all of her worries came to reality in a glimpse of an eye. Since childhood, she was accustomed to noticing teeth, and unlike the actual rapist, she realized the man had noticeable crooked teeth. She had totally missed this detail and mistakenly sent an innocent man to prison.

One reason unconscious biases are so hard to spot is that they are often mundane. While her Hidden Brain was prompting the rape victim to spot the unusual, the one element that could have prevented the rape victim from her mistake was too ordinary to mention. She was accustomed to noticing teeth characteristics and had developed an unconscious bias towards this ordinary feature. When terrific events happen, our “rational” side is looking for explanations equally as dramatic, even though the answer is often dull. How can someone like Hitler, who seemed to have grown up like an ordinary person, lead to such atrocities as the Holocausts? His moral compass must have become misaligned and he must have suffered from mental sickness. But what if his behavior was driven by unconscious forces, which originated in his Hidden Brain, for years and years, pushing him to act without full awareness of the consequences; this consideration is a plausible, yet provoking thought.

The Ubiquitous Shadow

Whether good or bad, the Hidden Brain always acts in a discrete and modest way, anticipating people’s needs but never claiming credit for it. It is operating at every moment, helping us choose a tie, make our coffee, or decide which car to purchase. The Hidden Brain works best for tasks that are ordinary, repetitive, or based on heuristics; but when it applies the wrong association, the consequences can be damaging.

An experiment, designed in Newcastle, England, evaluated people’s honesty in purchasing beverages and highlighted interesting features of the Hidden Brain. A sheet of paper, easily visible, was placed above a beverage dispenser to remind people to pay for their drinks. The system was based on honor; there were no checks in place to make sure people actually paid. Above the written reminder, experimenters displayed a picture that was changed weekly, showing flowers on even weeks and a pair of watching eyes on odd weeks. Analysis showed that money collected on odd weeks was three times as much as during even weeks. Quizzed participants confirmed that they had not noticed the photo was different from one week to another. What does this experiment tell us? People are influenced by elements they never consciously record. Week after week, people’s Hidden Brains remained vigilant to their peripheral visions, unconsciously registering and rapidly analyzing the change in picture. The watching eyes automatically prompted them to be more honest and pay for their drinks.

A different experiment, performed simultaneously by psychologists Adam Alter and Daniel Oppenheimer, confirmed our Hidden Brain’s powerful, influential authority. The two researchers studied the impact a difference in company names can have on the price of their stocks. They came up with hard-to-pronounce firms such as “Aegeadus and Xagibdan,” and easier ones like “Jillman and Clearman.” The experiment found that people, “tended to [unconsciously] overvalue companies with easy names and undervalue companies with difficult names,” by more than thirty percent over a single year. Alter and Oppenheimer even looked at the ticker symbols of companies listed on the NYSE and American Stock Exchange, and discovered the same pattern. However, it seems the “pronounceability effect went away with time,” proving that once investors started learning more about the companies, their initial biases disappeared. While these professionals obviously thought they were making deliberate, rational choices, this study proves that their Hidden Brains mistakenly instilled a sense of comfort and assurance in their decisions.

The Hidden Brain has a powerful impact on interpersonal relationships. Have you ever felt jealousy in one of your close friends’ success? Have you ever wished you were the one deserving the honors and accolades? Whether we admit it or not, most of us have experienced these emotions at some point of our existence. Social psychologist Abraham Tesser found that people usually enjoy others’ accomplishments when they are strangers. When couples or close friends do well in non-interacting activities, the same outcome is observed. However, a concern appears “when someone whom we are close to excels in a domain where we would like to be seen as excellent ourselves.” The artist who is outshone by his girlfriend, or the athlete who is outperformed by his best friend, feels a conflict.

John Trojanowski and Virginia Lee are co-directors of research on neurodegenerative disorders at the University of Pennsylvania; both are smart, ambitious, competitive, and successful in the same field and out of the same office. John and Virginia are married to each other, and according to Tesser’s research, one would assume their relationship suffers from this particular environment; but the reality is different. They have a secret that, “can be summed up in a single word: complementarity.” They have challenged the selfishness of their unconscious minds to their mutual advantage. With regards to their relationship, they have “unconsciously adopted roles that allow them to see each other as collaborators instead of competitors.” Rather than giving in to unconscious forces designed to benefit narrow selfish interests, they felt a potential threat and used their strong relationship to bring out complimentary domains. This story proves that our Hidden Brain’s unconscious bias can be harnessed to create strong and efficient interpersonal relationships.

Tracking the Hidden Brain

“Our Hidden Brain is like the wetness of water that the fish never notices – but can’t live without.”

Basic elements of our everyday lives, such as morality, love, and manners rely heavily on the Hidden Brain. Some unusual mental disorders highlight the reality of our unconscious mind, not always by its presence, but sometimes by its absence. The author narrates the story of Canadians Brian and Wendy McNamara, a happily married couple for thirty years. In 2004, their relationship started to suffer when Wendy was diagnosed with a mental disorder known as frontotemporal dementia, which affects outgrowths of the brain responsible for major unconscious thinking. In particular, this area shapes “our ability to judge social situations and make aesthetic judgments,” but does not impact our analytical powers. Consequently, the disorder caused Wendy to lack socially appropriate behavior, especially when it came to table manners, as her Hidden Brain was not functioning properly.

Social etiquette and human interaction rules are hardly ever written down as a set of laws; for instance, “There is no rule book [dictating] when it is appropriate to knock on someone’s door and suggest a drink.” Thanks to our Hidden Brain, we are unconsciously able to understand and apply social rules, constantly adjusting to the given situation. While education can sometimes be credited, most of our social behavior is learned from a succession of experiences we unconsciously encountered in the past. Did someone explicitly teach us that it is inappropriate to eat the last slice of cheese on the plate or reach across a crowded dinner table for salt? We just happen to follow most of these ‘rules’ without realizing that we know them.

Frontotemporal dementia experts, devoted to assist patients like Wendy, have performed studies confirming these observations. They found that the “most important aspect of being a law-abiding citizen is [not conscious morality, but rather our] ability to understand social rules.” It is not the laws in the world that prevent us from shoplifting, but rather our fear of being caught and having to shamefully deal with our misbehavior. Most often, people suffering from frontotemporal dementia know that they are breaking the law, but show no remorse, which proves that we can claim little credit for our conscious notion of morality. Our system of law mistakenly assumes that conscious rationality prevails in human actions; yet, people like Wendy are totally unaware and irresponsive to the dysfunction in their Hidden Brains that drives inappropriate behavior.

According to Joshua Greene, Harvard neuroscientist and philosopher, “ancient rules developed in the course of evolution,” are responsible for people’s understanding of ethics and morality, trumping the idea that “holy books and human laws” dictate social behaviors. One can wonder whether this new understanding of morality affects our responsibilities for immoral actions. Vedantam supports the stance that we should be accountable for both our conscious and unconscious mind, but need to actively seek the help of the Hidden Brain to reach a moral society.

The story of Wendy McNamara shows us that the unconscious bias we develop in our Hidden Brains is not always detrimental. In the case of social behaviors and human interactions, unconscious thinking helps us “navigate the world [and] creates the foundation for our lives as social creatures,” while its absence results in severe misbehaviors.

Cycle of Bias

Our Hidden Brain features the ability to recognize faces over other objects and is designed to be biased towards particular ones. A particular area in the brain, called the fusiform face area, has been scientifically proven to specialize in distinguishing human faces, triggering unconscious biases that affect us greatly. For instance, we tend to falsely associate certain animals that have been personified with pleasing attributes. Interestingly, the little mice in Disney’s legendary Cinderella movie or the fluffy hero starring the Kung Fu Panda trilogy both activate endearing thoughts in most people’s minds. How can we rationally explain such unconditional love for some of these creatures? We all know that real mice often carry diseases and that pandas can be very dangerous, yet it appears that our brain develops affinities for faces and unconsciously biases our feelings.

Research has proven that we tend to recognize people who belong to the same ethnic group better than others. A Chinese person has no issue distinguishing people among his/her peers, but will find it difficult to distinguish a white Texan from the other. In 2006, African American Congresswoman, Cynthia McKinney became furious at a Capitol Hill police officer who failed to recognize her, and the story went nationwide on the accusation ground of racism and prejudice from law enforcers. However, when thinking about it in terms of the Hidden Brain, we are forced to consider alternative justifications. “Identifying congressional representatives who belong to a less familiar group – African American women – can take a second longer because the mental processing has to be carried out by the conscious brain.” It is a very reasonable hypothesis to assume that the police officer did not mean Ms. McKinney any disrespect, but rather struggled to recognize her due to unconscious biases embedded in his mind. Unfortunately, our society is defaulted to consider that the Hidden Brain does not exist, deliberately accusing the cop of racism because it lacks a better “rational” explanation. However, data proves that unconscious and unintentional biases often account for eyewitness errors, and “Ignoring the role of race, rather than taking it into account, is what produces outcomes that are racist.”

Frances Aboud, a successful Canadian psychologist, has discovered intriguing features in toddlers’ social perceptions and judgments. Children provide us with a useful window into the development of our unconscious minds because they are able to rapidly form associations, which is how the Hidden Brain’s abilities expand.  She found that, on average, young children assign more positive adjectives to pictures of white faces and more negative ones with black faces. This observation held true whether the child was white or black. How can we explain that, at such a young age, these children already displayed unconscious biases? Unexpectedly, Aboud found no correlation between the views and opinions of their parents or teachers, and the behaviors observed from the toddlers.

So where did these ideas come from?

Aboud’s research prompted Vedantam to think of these children’s racial bias as triggered by two independent systems of learning in our brain, not by a “steady diet of hostile messages or indoctrination by bigoted parents.” On the one hand, society seems to focus its efforts to support the idea that conscious mind is all that matters. Our educational and judicial systems are designed to operate and respond in a rational way, appealing to our conscious perceptions. On the other hand, we tend to ignore that our brains also uses linkage, assimilation, and deductions to feed our unconscious minds and to slowly develop biases we are unaware of. A three-year old, white child does not think of a black person as bad, which would be a conscious reflection, but more as different, which subconsciously prompts distrust. “Separate from what the children were learning consciously […], they were unconsciously learning something else altogether,” without anyone else influencing their thinking.

As these young children mature over time and become “thoughtful” teenagers in a respectful society, our rational minds would assume that all their racial prejudices would disappear, which is not necessarily the case. Aboud studied interracial friendships between middle school children in America and examined the proportion of same-race and different-race friends. Whereas the toddlers she had previously studied had an even proportion of same-race and different-race friends, “the oldest children in her group had one and a half times as many same-race friends as different-race friends.” Even though these teenagers were surrounded by peaceful, anti-racism messages from their familial, educational, and media environments, they still cultivated racial biases and unconsciously formed same-race friendships. Their Hidden Brains had slowly and subtly influenced them over the years.

Aboud believes that, in a way, “some part of our brain is still stuck where we were at four and five and eight, and it is always there.” In other words, the Hidden Brain grows through an accumulation of experiences, blind repetitions and unconscious associations, and develops biases from the very first years of our lives. These preconceived ideas will shape our personality and affect the way in which we treat others. While this behavior is hardly ever noticeable, it is coming to light when we are unable to control our Hidden Brains, as toddlers, distracted adults, or elders.

Gender Bias and the Hidden Brain

The Lilly Ledbetter Fair Pay Act of 2009, signed into law by President Barack Obama, provides victims of pay discrimination the opportunity for fair hearings. As one may think the existence of sexism in the professional world has reduced, lots still has to be said about stereotypes that are unconsciously implanted in people’s minds. Lilly Ledbetter’s story symbolizes the hardships women endure in the work place and the effect of unconscious sexism in their careers. In 1998, after realizing she was underpaid compared to her male counterparts, she decided to sue her employer, Goodyear Tire & Rubber Company. As the case reached the Supreme Court, Lilly’s complaint was dismissed “on the grounds that the discrimination […] had taken place a long time” prior to her filing. There are no doubts that Lilly was a victim of sexist discrimination, but as with many cases of prejudice in real life, it is hard to prove and technicalities, such as elapsed time, prevent fair judgment.

From a scientific standpoint, unconscious bias is easier to demonstrate than in real life, and some fascinating experiments have revealed irrefutable effects of our Hidden Brains. Women leaders are often perceived as tough, ruthless, or even manipulative individuals, having lost their “feminine” side to adapt to the tough nature of business or politics. Madeline Heilman of New York University performed the following experiment: she told volunteers about a “tough, yet outgoing and personable [human being,] known to reward individual contributions and [work] hard to maximize employees’ creativity.” The only difference is that half of the volunteers were told the person’s name was “Andrea” and the other half heard about a leader named “James.” As participants were asked to rate how likeable they found that person, a striking three quarters of them found James more pleasant than Andrea, who was found less likeable merely because she was a woman in a leadership position.

The belief that today’s world is free of prejudice, whether it is racial bias or sexism, is simply false, but much of these thoughts come from unconscious forces, and are therefore, very hard to demonstrate. Each situation of discrimination is different and victims are often facing conscious bias in the form of stereotypes and preconceived ideas, which is what our social system is designed to fight against. However, we are currently unable to respond to unconscious biases that drive our decisions and dictate our behaviors, not only due to their “subconscious” nature, but also because of their subtle influence.

How do we find real life evidence that sexism remains a real issue in our society? Wouldn’t it be remarkably instructive if men could experience professional life as women do, and vice versa? If differences in treatment were to be observed, we would be certain sexism was “at work.” Scientific progress has allowed hope in finding an answer, and this optimism lies in transgendered people. Between 2003 and 2005, sociologist Kristen Schilt followed the transition from woman to man of twenty-nine individuals in Southern California. Overwhelmingly, the transmen attested to better treatment than they had experienced as women. Post transition, some related how colleagues facilitated their jobs or how management gave more thought to their ideas. “A Latino attorney told Shilt that an attorney at another law firm had complimented his boss for firing an incompetent woman and hiring a new lawyer who was ‘just delightful.’ The attorney […] did not know that the incompetent woman and the delightful new lawyer were the same person,” with the same educational background, professional expertise, and life experience.

When we benefit from undercurrents, we are invariably unconscious of them and usually credit ourselves through our talents and skills. Our Hidden Brain is an expert at providing rational explanations for the outcomes we observe – a promotion or salary raise must be coming because of outstanding performances and achievements. The reality is different, but few of us will actually experience the undercurrent of sexism; after all, if you never change directions, how can you tell there is a current? Transgender people are living proof that “changing direction” will make you feel the current of unconscious biases.

The Lure of Conformity

The Hidden Brain has a dramatic impact on our decisions in the face of disaster and terrorism. In both cases, the desire and pressure to conform to the norm imposed by our surroundings represent an unconscious force that can prove beneficial or detrimental.

Some of the events that occurred during the tragic attacks of the World Trade Center in September 2001 lay the basis for understanding mass decisions in the face of disasters. Keefe, Bruyette & Woods, a renowned invested firm, was spread over the eighty-eighth and the eighty-ninth floor of the South tower, which was directly affected by the impact of the second, hijacked plane. However, nearly every employee on the eighty-eighth floor survived, while almost all of the eighty- ninth’s floor employees died in the tragedy. Could there have been an independent decision from each person on the lower floor to evacuate the building? It is highly unlikely, as we would have seen the same proportion of survivors on the floor above. Understanding mass decisions by studying individual behavior is “like photographing a panoramic scene with a zoom lens, the details keep us from seeing the larger picture.” Even though people on both floors felt that they were making autonomous decisions, individuals evacuated the eighty-eighth floor because everyone else was, and the opposite reasoning stands for the floor above. Interestingly, the size of the group seemed to have an even greater impact, as researchers found that floors with less people evacuated the building quicker than more-occupied ones – the larger the group, the longer it takes to reach a consensus.

The belief that people are rational, conscious, and autonomous thinkers is greatly refuted in cases of disasters such as 9/11. Emergency planning assumes that people will think independently and flow evenly through available exits However, the opposite is usually observed, as “the desire to arrive at a shared understanding of what is happening is an extremely powerful drive of the Hidden Brain,” providing us with comfort and reassurance. The Hidden Brain instills a feeling of self- consciousness when we do something that few other are doing, diminishing our authority and triggering our anxiety. Nevertheless, this new understanding of the Hidden Brain could have a tremendous impact on the way we prepare for disasters. Many lives could potentially be saved if people were “warned about their tendency to abdicate decision-making to groups,” and proactively taught about the adverse effect of unconscious behaviors.

On the other side of these tragedies, suicide bombers made the unforgiveable commitment to give their lives in the pursuit of an ideal pushed to extremism. Are terrorists simply crazy people, affected by lethal mental disorders? The answer is no, and the explanation is similar to the one given above – the temptation to conform is a dominating unconscious force. In this case, however, it is small group dynamics that overturn people’s beliefs about what is and isn’t rational behavior. Religion or marketing campaigns have little to do in the decision these young people make to become terrorists. Rather, the belonging to a “small group where others had decided to become suicide terrorists” is the best predictor. Friends who had grown up together, dreamed together, lived together, are more likely to become “one another’s universe” and commit to something dramatic.

The central insight of this research on terrorism is that the Hidden Brain has the tendency to seek approval and meaning from people closely related to us. What is common to the worlds of military professionals, business executives, missionary orders, and terrorist organizations is the “ability of small groups to confer such approval and meaning.” Consciously, these people may think of themselves as patriots, capitalists, religious servants, and idealists; but at an unconscious level, they simply thrive being a part of something greater than themselves; a special endeavor that makes the group’s “survival and well-being more important than their own lives.”

Shades of Justice

It is commonly believed that biased outcomes result from deliberate bias and that our current criminal justice system, where various actors keep each other honest, is free from most mistakes. However, this view is based on the false assumption that human behavior is the product of conscious intentions. Research into the Hidden Brain has provided surprising information about disparities in judicial procedures, especially when race is involved.

In 2006, researchers from Stanford University studied differences in crime sentences, attempting to understand why some violent offenses result in the death penalty while others result in life imprisonment. Unlike previous studies, which considered skin color as a major factor, their results went a step further. They focused their analysis on black criminals and found that “Defendants who looked more stereotypically black than average were more than twice as likely to receive the death penalty as those who looked less black.” Interestingly, this observed bias involved only white victims, and excluded cases in which the criminal and the victim were of the same race.

Victims of so-called racial bias are often affected from the very moment they are arrested. In many criminal cases, researchers have found that law enforcers are unconsciously influenced by initial factors throughout the trial process, such as names or clothing styles. The Hidden Brain exercises its subtle, and sometimes vicious, powers by grouping these factors together to rationalize people’s decisions, often leading to mistakes. The difficulty with the unconscious mind, by definition, lies in people’s lack of awareness of their tendency to be influenced. While some juries might have been consciously biased, it is highly unlikely that most of them are. A better explanation lies in the assumption that most judges are convinced they are making the right decisions. “We believe that juries that want to be fair are fair” and that good intentions result in fair outcomes. What is there to do? “Re-imagining our system of justice based on the new understanding of the brain […] is a daunting undertaking,” and it is likely that racial bias will continue to create judicial errors in the future.

Politics and the Hidden Brain

Psychologist Anthony Greenwald designed a test for unconscious bias that challenged the way people think about reasoning. The Implicit Association Test (IAT) allowed him to analyze biases people develop about race and gender. Racial bias can take the form of people’s tendency to associate white people with more positive concepts than black people. In one set of tests done in

2008, Greenwald determined people unconsciously associated British Prime Minister Tony Blair with being more American than Barack Obama. People obviously knew of Obama’s citizenship, but their Hidden Brains manipulated them into thinking they disliked him because he felt different to them Once their subconscious “whispered to these voters that Obama was different, they quickly came up with plausible ways to explain to themselves why they didn’t like the candidate.”

Ever since Barack Obama’s run for presidency in 2008, psychologists and sociologists started raising questions about people’s race bias and its impact on voting. Using the IAT, they came up with a map of the United States showing patterns of bias. As one could expect, results found a noticeable association between race bias and political views – high bias regions usually voted for Republicans for instance. But what does racial bias tell us that racial makeup of a region does not already? Interestingly, when a region or district is composed of either a few or a lot of minorities, racial bias does not have a particular impact on political views. In both cases, the tendency of white people to vote Republican and black people to vote for Democrats seem to take over the unconscious bias. This tendency is a bias in itself, but it is not unconscious. On the other hand, racial bias seems to impact voting patterns in areas where the minority population is “sizable enough.”

Studies concluded that racial bias triggers people’s views on many other subjects, such as economics and health care. When talking to people about welfare, Princeton’s Martin Gilens found that they were “much more likely to automatically visualize a black person than a white person.” Political strategies have greatly benefited from this feature of the unconscious mind. Politicians just have to “talk about crime in general and [people’s] Hidden Brains will supply a picture of a violent black man.” People’s subconscious works by associations and correlations, biasing us into linking two unusual events taking place simultaneously, even when they have nothing to do with each other. As we have seen, much of the Hidden Brain’s power lies in the fact that “its influence is subtle and mundane,” which creates difficulties in fighting it. Without explicitly discussing racial matters, people still think differently about political issues because of racial bias.

Is fighting people’s unconscious minds the solution to more fair elections? Barack Obama’s campaign organization designed some elaborate tools to fight racial bias during the 2008 Presidential Election. As expected, most of them did not explicitly use race, but rather suggested “an alternative route to channel [voters] feelings.” Unlike Martin Luther King’s way of “righteous indignation,” Obama’s success in the election can be attributed to his relentless effort to not focus on changing people’s underlying views about race and gender. The ultimate goal of being elected was achieved without explicitly combating racial bias. Nevertheless, Obama’s election provided him with a platform to fight racial stereotypes over his tenure, and as we learned that the HiddenBrain learns through blind repetitions, an unconscious change may very well be ongoing in people’s minds.

The Telescope Effect

The Hidden Brain also influences the way we interpret numbers, especially very small and very large numbers. By doing so, unconscious factors manipulate our perception of risk and moral judgment, and affect policies touching the lives of millions.

Our minds are challenged in evaluating the relative size of small numbers, which impacts the way we perceive risk. For example, it is hard to distinguish between something that has a one in a thousand chance of occurrence, and one that has a one in two thousand chance of occurrence. Additionally, the Hidden Brain tricks us into fearing violent and external risks more than threats coming from ourselves. This is why people feel safer speeding down the highway at eighty miles per hour than they do sitting in an airplane.

As surprising as it feels, the risk for suicide in the United States is twice as large as the risk for homicide. Statistics show that police officers are four times more likely to commit suicide than professionals in related fields, such as firefighters or military people. Why is that so? Simply put, police officers carry guns constantly, whether they are on call or not. “Guns don’t make people suicidal, but they provide the impulse of suicide with a vector,” and there is irrefutable evidence that the proximity with weapons increases the risk for suicide. The debate over the legal ownership of fire weapons has been going on for decades in the United States, and both sides hold valid arguments. Yet, when it comes to the Hidden Brain, the truth relies in the distinction between control and safety. We feel more control by owning a gun, but is it really safer? We tend to develop an unconscious bias in believing that more threats arise from the outside environment, when they actually come from ourselves most of the time. The risk of domestic violence, car accidents, or suicide feels remote compared to the risk of homicide or terrorist attacks, but in reality it is not. Both risks are rare, and our inability to differentiate small numbers, along with our fear of new uncontrolled terrifying threats, allows our Hidden Brain to bias our thinking.

Human beings are not good with large numbers either. Vedantam uses some of the most tragic events in history to prove his point: genocides and mass suffering. How can we explain people’s passiveness in the face of the Holocaust during WWII or the Rwandan genocide in 1994? On the other hand, we saw charitable minds from around the world coming together to save a little dog named Hokget from the Insiko - a burned-out tanker off the coast of Hawaii in 2002.

An experiment performed by psychologist Paul Slovic showed that people with identical funds were willing to give more money to save the same amount of lives in a smaller group of people. Slovic said, “If empathy is putting yourself in someone else’s shoes, think of putting yourself in two people’s shoes. [Our brain] does not work. It falls apart.” Similarly, philosopher Peter Singer devised an interesting dilemma, asking people whether they would save a drowning child even though they would ruin a two hundred dollar pair of shoes. Of course, the answer is yes. However, when millions of children need help, how can we explain that many are reticent to write a check of the same amount to a charity to save a single one? In this situation, our Hidden Brain makes the individual seem less significant because it has difficulties wrapping its mind around large numbers. We are capable of feeling personal responsibility for one child, but one of millions feels different.

According to the author, the Hidden Brain shapes our compassion in the form of a telescope, making our ability to respond optimal when focused on a single person only. The Telescope Effect is a strong internal force that unconsciously biases us into caring more about one life than a hundred. Our minds are not “calibrated to deal with the difference between a single death and a million deaths,” which explains people’s relative inaction during mass sufferings and genocides. While the Telescope Effect in our moral judgment is part of nature and cannot be avoided, its understanding can help guide our actions through reason rather than instinct.

One may wonder why making the unconscious conscious seems like such a daunting task. The difficulty is that unconscious biases lie within ourselves and have developed over our entire existence, sometimes even over full generations. Yet, putting reason ahead of instinct and valuing conscious intentions over intuitions is what sets us apart from other species. Vedantam’s ideas may sound provoking to many and are not easy to digest for our conscious selves. For all the ways his book has “shown how rational mind is unequal to the machinations of the Hidden Brain,” it also argues “reason is our only bulwark against bias.” Once we acknowledge the reality of unconscious biases coming from our Hidden Brain, it is necessary to remember that there are no ways to eradicate its manipulation completely, and that “reason is our voice of conscience.”