The city of Granada is notable for several things. Most visitors go to see the Alhambra, or for a strange procession during Holy Week interesting chiefly for having provided fashion tips to the Ku Klux Klan. Judging by its Wikipedia entry, it is also home to Europe’s most eccentric twinning committee: its twin towns include Aix-en-Provence, Freiburg, Marrakech and Sneinton, a suburb of Nottingham whose attractions extend to a moderately interesting windmill.
Its other distinction is that it is the unfriendliest place I have ever been. Granada’s hospitality industry seems to have improved little since 1936, when locals celebrated the return of Federico Garciá Lorca by shooting him and dumping his body by a road. Gaining admission to the Alhambra required presenting various forms of identification to scowling officials. The cafés and restaurants seemed to resent the fact that customers were cluttering their tables. My daughters, then toddlers, who received rapturous affection on Italian holidays, were treated like the twin girls in The Shining.
Why? To a game theorist or cybernetician the explanation is simple. Almost everyone goes to Granada for a day, and only once. You take a coach from the coast, do the Alhambra, eat lunch and bugger off back to Marbella. No Granada restaurant has any prospect of repeat business. Why be nice to anyone if there is no chance they will come back? Tourists also pose little reputational risk. A restaurateur in my home town knows that should he cheat me, I will tell my friends not to eat there. With tourist restaurants (I visited Granada in the days before Trip-Advisor) no such feedback loop existed. The restaurateur sees each visitor not as a possible source of repeat custom but as a sucker to be fleeced.
One conclusion to be drawn from this is that rating technologies like Yelp, TripAdvisor and so forth are vitally important not only because they help us find good restaurants and hotels but also because they force restaurants and hotels to improve.
My wider conclusion is that capitalism only works when you can hurt the people who let you down. With no prospect of retaliation, there can be no trust. The means of retaliation may vary: you can use force (the Mafia is, in effect, TripAdvisor with added violence), you can use legal means or you can boycott brands or encourage wider defection through word of mouth.
Capitalism goes wrong when the people who make regulatory decisions about ‘markets’ are economists not game theorists. Economists naively believe that trust and reputation are givens, and that ‘markets’ are about pure efficiency. In the pursuit of efficiency, they create abstract ‘markets’ which are not markets at all, since the pursuit of efficiency breaks the tacit feedback mechanisms that capitalism needs to stay honest and to improve.
Beef labelled ‘Bob Smith & Sons, Butcher’ is almost certainly beef. Bob risks losing his livelihood (and his good name) if he doctors it. Unbranded beef bought in ‘efficiently aggregated’ anonymous markets becomes horse. When nobody’s name is linked to a product, why should anyone care?
Big banks are no doubt more ‘efficient’ than small building societies — but at the cost of losing any connection with (or obligation towards) the people they lend to. Again, ‘efficiency’ grows at the price of feedback.
So we can never restore trust in the banking sector until some bankers are seen to get hurt. Not the ‘economically efficient’ fines paid by employers to regulators, but prison: orange overalls, slopping out and shower -anxiety.
In the Middle Ages they would have burned 50 random bankers in the town square: normal business would have resumed the next day. You can’t trust anyone who is too big to jail.
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