6 of 6 people found the following review helpful:
5.0 out of 5 stars
Key insights expressed in a compelling manner, February 24, 2010
This review is from: The Economics of Integrity: From Dairy Farmers to Toyota, How Wealth Is Built on Trust and What That Means for Our Future (Hardcover)
We hear so much about people who become wealthy as a result of selfish conduct, sharp business practices or outright fraud that is seems astonishing for someone to claim that wealth is in fact built on integrity. But that is what Anna Bernasek does in this book. She illustrates in a clear and compelling way how great a role trust and trustworthiness play in everyday transactions in a developed country.
Every time you buy milk at the supermarket, you are placing an enormous amount of trust in a large number of people who are complete strangers, including farmers, transporters, processors and retailers. If any one of these decided to cut some corners for short-term financial gain, thousands of people could suffer, as indeed occurred in China not so long ago when milk supplies became contaminated. It would be impossible for most people to purchase food at reasonable prices if the suppliers did not voluntarily act in a trustworthy manner. The author goes on to describe how integrity is a key factor in many other aspects of business including our financial systems.
Although the author does not mention this, she has identified a key reason why only some countries are wealthy, whereas most remain poor. In Western countries, transaction costs are very low because you can take it for granted that the products you buy will work properly, be safe to use, and carry the guarantee of the manufacturer named on the label. In many poorer countries, transaction costs are very high because you have to test things for yourself, and trade mark forgery is prevalent. This does not mean that people in poorer countries are any less honest than people in wealthy countries; it merely means that poorer countries have not yet developed the business norms and consumer protection regulations necessary to ensure low transaction costs. This is a key reason why poverty cannot be "solved" just by sending money; poverty can only be solved when a high-trust low-transaction-cost environment is created.
I found the author's arguments about legislating for integrity a little less compelling. Wealth is generated when the participants in the marketplace voluntarily conduct themselves with integrity. It is necessary to have laws, but laws work best if people obey them freely, without having someone looking over their shoulder all the time. Policing is costly, and there is a trade-off between the benefits of good behaviour and the cost of policing.
This is in my opinion an excellent book. It is quite short, but very interesting to read. I highly recommend it.
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5 of 5 people found the following review helpful:
5.0 out of 5 stars
The power of collective integrity, February 23, 2010
This review is from: The Economics of Integrity: From Dairy Farmers to Toyota, How Wealth Is Built on Trust and What That Means for Our Future (Hardcover)
As Anna Bernasek suggests in the Introduction, "If we ignore the important ways that people cooperate to create wealth, we miss the most valuable source of wealth creation imaginable. Recognizing the true value of relationships, we can build stronger relationships and create and share greater wealth. It's a powerful way to reinvigorate the economy." With regard to this specific book, she explains, it is a tool kit "for creating integrity anywhere in the economy. When policy makers are thinking about changing health care, reforming the tax system, or improving the financial system, they can use these tools to systematically build value. I encourage readers to see that integrity unlocks enormous opportunities for wealth creation that we may not yet imagine."
Throughout her lively and eloquent narrative, Bernasek examines a number of situations in which everyone involved benefits because they do what is right and do it right, who abide by rules that "set people free to do the right thing, rather than holding people back," rules and values that encourage activity and create more wealth. What is required to deliver a gallon of milk offers a case in point. Here's the supply chain: farmer (serviced by feed supplier, co-up, vet, hoof trimmer, and nutritionist) > milk hauler > second driver > milk plant > distributor > store > consumer. Prior to point of sale, everyone involved must be both worthy of trust (i.e. honest, following the rules, being careful on the job) and trusted by everyone else. These relationships of trust throughout the process require an integrity that produces value for everyone involved.
The other examples that Bernasek examines include the ATM value and supply chain, what the Federal Reserve is and does, Toyota's production system (whose integrity has recently been rigorously questioned), L.L. Bean's total trust in its customers, W.L. Gore & Associates obsession with quality, and eBay that provides a mini-case study of mutual trust within a multi-dimensional structure. When eBay was launched, its backbone was a feedback that subsequently underwent several modifications. "Users if eBay get feedback on how they conduct themselves from other users. This was critical for two reasons. First, the feedback system provided users with an incentive to behave well." Misbehave and you cannot be associated with Ebay. "Second, the feedback system effectively brought everything out into the open." In terms of behavior lacking integrity, Martha Reeves and the Vandellas said it best:
"Nowhere to run to, baby
Nowhere to hide
Got nowhere to run to, baby
Nowhere to hide"
In Chapter 8, Bernasek explains how to create an integrity system that will achieve and then sustain mutual respect and trust, one that is characterized by transparency (i.e. full disclosure), open communication systems, attractive incentives and significant rewards, carefully developed and clearly explained rules, and self-regulation to eliminate cheating. In the next chapter, she examines the "DNA of Integrity" that is comprised of "basic building blocks" that enable an investment in collective integrity one that possesses three assets: "the genetic code for the system of trust: disclosure, norms, and accountability," all of which are already widely utilized but using them together with an economic objective, to sufficiently create a self-reinforcing system producing repeated increases in integrity, is an exciting new prospect."
I agree with Bernasek that the potential ROI from a commitment to personal integrity will be substantial for an individual and even greater in direct proportion to the number of people who share a commitment to collective integrity. The potential applications and benefits of the principles that Anna Bernasek affirms are unlimited. I share her hope that our nation will adopt the economics of integrity even as I fear that the "legions of entrenched interests eager to protect their turf," seeking its own advantage through special pleading and sophisticated public relations," will once again prevail. How can we expect them to demonstrate integrity when they do not possess it?
I urge those who share my high regard for this book to check out two books by Bill George, Authentic Leadership and True North, as well as Saj-nicole Joni and Damon Beyer's The Right Fight, James O'Toole's The Executive's Compass, Michael Ray's The Highest Goal, and Alan Deutschman's Walk the Walk.
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1 of 1 people found the following review helpful:
5.0 out of 5 stars
Elegant Economics, April 29, 2010
This review is from: The Economics of Integrity: From Dairy Farmers to Toyota, How Wealth Is Built on Trust and What That Means for Our Future (Hardcover)
Bernasek's prime point is that trust building practices are the only way healthy and vital economies function. We trust a dozen transactions to bring us healthy milk, non of whom we can see or know. More than that for an ATM transaction that protects our personal info. She uses Toyota as an example of trust, and even its it failure, it proves her point. When companies prove themselves trustworthy, or the opposite, it effects not only them but the economy. And if this multiplies as in the case of the Financial Crisis, the entire economy pays. Her analysis of the current crisis is enlightening and ends up optomistic with a path forward.
Bernasek provides a framework for making our economic policy and practices workable again. Three governing principles include: Disclosure, Meaningful and easy to understand rules, and accountability. Disclosure makes it possible to not hide anything and then we can have the same info; rules let us know the lay of the land and we can debate their effects and achievement. But enforcement is necessary in a equitable way, or people ignore the rules assuming they will not be held accountable. The IRS is her example on the last one.
Very readable economics course.
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