The Economics of Integrity: From Dairy Farmers to Toyota, How Wealth Is Built on Trust and What That Means for Our Future

By Anna Bernasek

"Anyone interested in understanding what makes our economy work must have this on their bookshelf." --Mark Zandi, Chief Economist, Moody's In The Economics of Integrity , acclaimed financial... This description may be from another edition of this product.

• Format: Hardcover
• Language: English
• ISBN: 0061774138
• ISBN13: 9780061774133
• Release Date: February 2010
• Publisher: Harper Business
• Length: 208 Pages
• Weight: 0.70 lbs.
• Dimensions: 8.3" x 0.8" x 5.5"

Customer Reviews

Who Knew Integrity Was the Key?

//The Economics of Integrity// should have been written years ago but, it springboards off this country's, and the world's economic crash of 2008. Author Anna Bernasek lays out from the beginning in January 2008 what set in motion the demise of our economy; who knew what and how it came to be. She deftly defines commerce practices of ethical integrity including dairy farmers, truckers, Toyota, and the banking industry. Her soapbox is built on changing our thinking from, "How can I profit?" to "How can we profit?" Her commentaries are based on sound statistical and historical data and shouldn't be ignored. Without integrity in all our businesses, we all fail. But with it, we all reap the benefits of trust and increased trade. So simple in concept, it makes you question how we got to such an unhealthy, selfish way of thinking. Bernasek looks deeply into what has been done right in the economy and expounds on that concept for further value. This book should become a mandatory read for all new and existing business practices and for those of us who consume. Five stars for Bernasek's bravery in speaking out on the merits of integrity! Reviewed by M. Chris Johnson

Elegant Economics

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.

Key insights expressed in a compelling manner

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.

The power of collective integrity

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. <br /> <br />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: <br /> <br />"Nowhere to run to, baby <br />Nowhere to hide <br />Got nowhere to run to, baby <br />Nowhere to hide" <br /> <br />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-