For example, in the absence of a strong work ethic and feelings of reciprocity among employers and employees, an adequately functioning labor market would be impossible. If trust, truth-telling and other ethical behaviors were absent among borrowers and lenders, credit markets, likewise would collapse. The same is true with even greater force of other institutions, so that: "...no social system can work ...in which everyone is ...guided by nothing except his own ...utilitarian ends.." (Schumpeter).I know academic papers are supposed to speak with an air of timelessness and not riff on current events like blogs, but it must have taken effort to write the highlighted sentence in 2010 without making explicit reference to the actual state of our society.
... the following are commonly held to be among the cultural foundations of a well functioning liberal order: willingness to help others at a cost to oneself (voluntarily paying taxes and contributing to public goods for example) and upholding social norms such as respect for private property, honesty, fair treatment, and political participation even when these do not enhance one's material benefits...So, to restate the idea, traditional human society develops a rich texture of human relationships, based on kinship, professional guilds, personal loyalty, etc. Liberalism (aka modernism, aka the market) comes along and sweeps most of the relational structure away and replaces it with individualised, atomistic economic transactions. But the market depends on a certain level of trust and good faith. All that stuff comes from an earlier time, and the grinding gears of the market will eventually use up the store of it that was generated from earlier times, and we're left with a harsh landscape of pure self-interest and low trust, which just won't work that well.
By liberal society I mean one characterized by extensive reliance on markets to allocate economic goods and services, formal equality of political rights, the rule of law, public tolerance, and attenuated ascriptive barriers to mobility... examples of liberal societies are Switzerland, Denmark, Australia, the U.S. and the U.K., while examples of non-liberal societies... are Saudi Arabia, Russia, Ukraine, and Oman as well as the small scale societies of hunter-gatherers, herders and low technology farmers...
So then the paper presents a mathematical model for thinking about virtue and liberalism. There's a lot about this kind of thing that raises my hackles. For instance, it's not really clear that you can tell much from ultra-simplistic models in which "virtue" is represented by a single numerical variable. But it may that an ultra-simplified model is better than no model at all. Certainly much has been made before of game-theoretic models like the Prisoner's Dilemma, and this is just a slightly more complexified version of that.
This topic is related in various ways to an earlier paper by Bowles and Jayadev on guard labor.
Indirect evidence consistent with the predicted inverse relationship between virtue and the extent of markets is found in the fact that the U.S., perhaps the most market-based of the advanced economies, also excels in the fraction of its labor force devoted to what Jayadev and I call guard labor, namely, that devoted to (or the consequence of) maintaining order.Bowles' conclusion is that while there is some general truth to the parasitic liberalism thesis, it paints too simplistic a picture:
...the parasitic liberalism thesis fails not because it misunderstands the cultural consequences of markets or the tendency of liberal institutions to erode traditional institutions and cultures, but rather because it overrates the benign contribution of tradition to the moral underpinnings of liberal institutions, and underrates the contribution of the liberal state and other non-market aspects of liberal societies to the flourishing of these values.My own take: The US certainly seems to have consumed a large stock of its virtue, while cultures with deeper roots in tradition seem to have deeper wells of virtue to draw on (for "virtue", read "willingness to cooperate with others" or simply "fraternitié", the third and often neglected leg of the French version of liberalism). That may be why the US seems to be heading into banana republic territory while European states actually seem to use there powers to take care of their citizens. The people who do really well at small-scale, ground-level capitalism in the US are those with large family/ethnic networks to draw on.
More generally, it's just too soon to tell. Liberalism, modernism and capitalism constitute a major change to human society, and we are only part-way through the transition. Technology continues to evolve and it drives new variants of political structures (ie, print supported the rise of nationalism, radio supported the rise of fascism, and we don't really know what the Internet will do yet). Liberalism is only a few hundred years old and given its self-mutating nature it is impossible to say what its long-term prospects are.