Rory Sutherland

Why Granada is the unfriendliest town on earth

• From magazine issue: 30 March 2013

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Alexander Larman

What happened to the Rishi Sunak I knew at school?

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.