05.28.09

How Empathy Can Save the Economy

It may be the Supreme Court’s buzzword du jour, but empathy’s emotional conclusion—trust—is the underpinning of our economy. Post-crash and post-Madoff, how will America restore this complicated neurological function?

In selecting Sonia Sotomayor as his nominee for the Supreme Court, President Obama first stressed that he wanted to choose a judge “with that quality of empathy, of understanding and identifying with people’s hopes and struggles.”

During the campaign, Obama described America’s “empathy deficit,” where selfish virtues are glorified and understanding others is seen as too touchy-feely, too girly to be important. If Republican reactions to Obama’s desire for empathy on the court are to be believed—most notably, party chairman Michael Steele’s jeering response, “I’ll give you empathy. I’ll empathize right on your behind”—then the empathy deficit is alive and well. Which is too bad, because we badly need that squishy, soft quality to restore the hardest of hard things, the economy.

If Republican reactions to Obama’s desire for empathy on the court are to be believed, the empathy deficit is alive and well. Which is too bad, because we badly need that squishy, soft quality to restore the hardest of hard things, the economy.

Indeed, empathy is the cornerstone of trust: If you cannot put yourself in the place of another and trust that he will behave predictably, you cannot trade with him. Far from being simply a nice maternal luxury, this empathic trust is the lifeblood of trade.

When the economy is humming along nicely, few people consider the amount of trust involved in every transaction. But simply eating at a restaurant involves implicit trust in hundreds of people—from the person who picks the lettuce to the server who takes your credit card. More abstractly, any commercial exchange implies trust in the millions of people whose collective faith sustains the dollar’s value.

Going back to Adam Smith, sociologists and economists have long pondered the role of trust in the economy. The idea of trusting strangers to behave well with money comes from being able to identify with them; in other words, to empathize. Businesspeople might want to use this “empathic” understanding in a less warm and fuzzy way to gain advantage—but if there’s no basic trust that money lent will be repaid, things won’t work too well.

Research shows that countries and regions in which there is little trust outside one’s own family tend to lag in economic development and growth. “Across countries, the level of trust predicts poverty strongly,” says Paul Zak, director of the Center for Neuroeconomic Studies at Claremont Graduate University in California. “The highest trust countries are Scandinavian, the lowest is Brazil.”

The less people trust each other, the more need there is for regulations, police, lawyers, and other security measures—and the longer it takes to negotiate terms and make contracts. “As trust goes down, transaction costs increase,” says Robert Kurzban, assistant professor of psychology at the University of Pennsylvania. Lack of trust, then, taxes every transaction and hampers economic growth.

The U.S. has historically been considered a high-trust society. Now, post-crash and post-Madoff, America may need to reconsider trust: where it comes from, how it can be damaged, and how it can be repaired as one of the essential ingredients for a lasting recovery.

Neuroscientists have only recently begun to understand the roots of trust in the brain. Kurzban collaborated with Zak on a study that looked at the relationship between trusting behavior and a brain chemical called oxytocin. Best known as the “cuddle chemical” or “love hormone” that bonds parents to children and lovers to each other—oxytocin is the stuff that makes us empathize and care. But what it physically seems to do in the brain is create a connection between a particular person and a sense of safety and trust.

In the experiment, a person was given money, some of which would be “invested” with a stranger. In one scenario, the investor could decide how much to invest. In a second scenario, the amount was set randomly by computer. In both cases, the investment was assumed to triple in value and the recipient of the funds got to choose how much of that gain to return to the investor.

Researchers found that the people who received an amount chosen by the investor—a transaction that implies trust—had higher levels of oxytocin than those who received an amount dictated by computer. And the people with higher levels of oxytocin were more generous in the amounts they chose to return to the original investor.

Other experiments have shown that giving people oxytocin as a nasal spray makes them more generous—and more likely to forgive if a person takes money but does not give back.

Research on how trust grows from childhood, is encoded in the brain, and then affects society is only just beginning. Studies have found, for example, that children reared in orphanages without much individual attention have disturbances in their oxytocin system. They also tend to have difficulty empathizing and trusting—with some alternating between indiscriminate affection and complete mistrust. Beyond that, there are few human studies, but animal research has demonstrated that when mother rats are more nurturing, their babies have higher oxytocin levels and, in turn, are more nurturing to their own offspring. (To rule out a genetic explanation for this, researchers have “cross fostered” baby rats to either more- or less-nurturing mothers.)

Levels of trust also vary with cultural conditions faced by adults. Recent research led by Angelo Antoci, professor of mathematical economics at the University of Sassari in Sardinia, Italy, has been exploring a fascinating and highly relevant aspect of this relationship: Markets rely on trust to work efficiently, but a thriving economy produces consumer goods that can undermine the trust needed to sustain it.

Television is a classic example. As Harvard public-policy professor Robert Putnam argued in his 2000 bestseller  Bowling Alone, the introduction of television coincided with a huge drop in virtually every measure of social connectedness, from voter participation to, yes, bowling leagues, family dinners, and the number of confidants people report having. Antoci describes a “social poverty trap” in which alternatives to social activity become more popular, which results in friendships being less satisfying and people feeling less empathetic toward each other, which makes the alternatives more attractive—and on it goes.

Of course, the social nature of Internet interactions could theoretically put some brakes on this trend. Says Antoci: “The effect of this ‘electronic’ social interaction on the quality of the social environment requires further studies. However, we think that electronic social interaction is an imperfect substitute for face-to-face real-life interactions and is relatively less productive in generating long-lasting social ties.”

One of his colleagues, however, is more enthusiastic about the 'Net. “In my view, the recent Internet explosion is the most powerful means we have to reverse the trend,” says Fabio Sabatini, a research fellow at the University of Siena in Italy. He met his fiancée and made some good friends on Flickr, the photo-sharing Web site.

Certainly for young children, face-to-face interactions are crucial for healthy emotional development. Studies have found that too much screen time can be detrimental to that development.

Far less is known about how, later in life, trust is encoded in the brain and affects social and economic transactions. But the connections yet to be made promise to be fascinating—and if we want to revive the economy, trust—and its roots in empathy—can’t be ignored.

Maia Szalavitz writes about the intersection between mind, brain and society for publications like Time online, The New York Times, Elle and MSN Health. She is co-author, most recently, of Lost Boy, the first memoir by a young man raised in Mormon fundamentalist polygamy, Brent Jeffs. She is senior fellow at Stats.org, a media watchdog organization.