Yelp has revived intimate capitalism

The internet has returned us to preindustrial familiarity with market participants

Credit: Michael Byers

John Paul Rollert

In-House Ethicist

John Paul Rollert | Feb 11, 2020

Sections Economics

Dentists have a distinct advantage whenever the need for negotiation arises. They float over you like the face of God, telling you what you must do in service of a sound body. You, meanwhile, are busy drooling.

Even a routine cleaning holds the potential for such a pricey conversation, but the circumstances are far more perilous for a first-time patient. Trust me, I know. Nearly a year ago now, I found myself in a dentist’s chair in an office whose only commendations were its inclusion in my health-insurance plan and its proximity to my home. You live in a fine neighborhood, I told myself. There’s no need to worry.

There certainly was. The tip-off should have been an office that was as busy as a free buffet at a funeral home; but instead of taking the empty corridor as a sign to feign a stomachache and head for the exit, I eagerly filled out all of the patient information in the hopes of being on my way in under an hour. I succeeded, but not before a hurried X-ray whose results were never shared, the hard sell for a suite of “essential” services I knew I didn’t need, and a cleaning that might just as well have been done with a bristle brush and a trowel.

It was an unpleasant experience—it always is when someone takes advantage of you—but what’s remarkable about it, at least to someone who studies the history of capitalism, is how little the original architects of laissez-faire feared that their system might embolden such individuals, the pariahs of the marketplace: the hucksters, the hustlers, the swindlers, the flimflammers, the snake oil salesmen, the money-grubbing merchants, the two-faced tradesmen, the Potemkin retailers, the fly-by-night financiers, and the confidence men. (As well as the dodgy dentists.)

In other words, the people you really don’t want to do business with.

The reason for such sangfroid in the face of a potential parade of horribles had everything to do with the conditions of early capitalism. A fine illustration is provided by “A Plan of the Town of New Haven,” a map of one of New England’s earliest settlements. It was drawn up by James Wadsworth, an occasional cartographer, in 1748, the year he graduated from Yale College.

 At first glance, one can’t help but be struck by the neatly geometrical layout of the settlement: nine squares, assembled three by three, forming the perfect square that represents the earliest exercise in colonial city planning. Yet, if you look more closely at the small buildings that fill these blocks, you’ll find entries next to them such as “Joel Potter” and, then a line below it, italicized, “Shoemaker. There are similar designations for “Jo. Burroughs” (“Hatter”) and “Dav. Gilbert” (“Tanner”)—not to be confused with the other villager who kept that putrid pastime, “Dav. Gilbert Jr.,” one door down.

The same holds true for all of the merchants and tradesmen in this small community, and, taken together, they illustrate the world of intimate capitalism that Adam Smith had in mind when he wrote The Wealth of Nations a few decades after Wadsworth tried his hand at mapmaking. The fabled trio from that book—the butcher, the brewer, and the baker—are all small-town figures whose professional activities are a component part of a particular community. Their lives are characterized by constant exchanges, and not merely of an economic sort. At the tavern, in the town square, across the hearth, the lives of these men were interdependent and intertwined, so much so that there was no meaningful distinction in the minds of neighbors between their private affairs and their professional pursuits. To the residents of New Haven, the fact that Joel Potter was a shoemaker was hardly a trivial detail. On the contrary, it surely must have seemed an essential part of his identity, for everyone who knew Joel Potter would have seen him, day by day, as a man preoccupied with his trade.

To ignominy or advantage, any activity behind the shop counter would be remembered in the town square.

Such a state of affairs, the social conditions of intimate capitalism, shaped how a tradesman made sense of his self-interest and went about pursuing it. Indeed, for Smith, an individual’s self-interest was never more than an amalgam of interests that jostle for priority and attention. The composition changes over time—an old codger on the edge of oblivion probably prefers family time far more than he did as a man-on-the-make in his early 20s—but what stays consistent is that we can never entirely satisfy all of our interests at once and that, in addition to the burden of choice, how we pursue one particular interest influences the likelihood of realizing, or retaining, the others. 

For the men on Wadsworth’s map, the art of managing these interests was especially complicated, for social and economic affairs were always interwoven. To ignominy or advantage, any activity behind the shop counter would be remembered in the town square. If the butcher put his thumb on the scale, the brewer watered down his beer, or the baker boxed his apprentices about the ears, word would immediately make its way around town, and such behavior would be rewarded by disapproving looks and decreased traffic. Conversely, a winning smile and a way with customer service won a busy shop and the bounty of friendship.

One colonial shopkeeper who viscerally understood the high stakes of intimate capitalism was Benjamin Franklin. In his autobiography, a work largely concerned with Franklin’s early years in the printing business, Philadelphia’s first son reflected at length on how one’s personal and professional activities are the tesserae of public reputation, a mosaic whose appeal overwhelmingly determines the likelihood of commercial success.

Such concerns took on a special urgency when the 22-year-old Franklin passed from being a precocious apprentice to the proprietor of his own printing house. This was his big shot, and in what I have long considered the quintessential passage of his memoir, he reflected on the behavior necessary to ensure his fate. “In order to secure my Credit and Character as a Tradesman, I took care not only to be in Reality Industrious & frugal, but to avoid all Appearances to the Contrary.” Franklin continues:

I drest plainly; I was seen at no Places of idle Diversion; I never went out a-fishing or shooting; a Book, indeed, sometimes debauch’d me from my Work; but that was seldom, snug, & gave no Scandal: and to show that I was not above my Business, I sometimes brought home the Paper I purchas’d at the Stores, thro’ the Streets on a Wheelbarrow. Thus being esteem’d an industrious thriving young Man, and paying duly for what I bought, the Merchants who imported Stationary solicited my Custom, others propos’d supplying me with Books, & I went on swimmingly.

If “Credit” and “Character” appear codependent, that’s because of the way gossip functioned in the commercial sphere Franklin occupied and Adam Smith assumed. It was a world of routine engagements, where any bad behavior on either side of the shop counter would boomerang on a tradesman, ruining his credibility as a borrower and a businessman. Indeed, good character was so critical that the “Reality” of it, alone, wasn’t enough. A tradesman like Franklin had to be known throughout the community for the component parts of a good reputation—honesty, industry, prudence, and thrift—for nothing less than his viability in business depended on it.

Franklin and Smith died within a few months of each other in 1790, so they didn’t live long enough to see the industrial revolution fundamentally transform the social conditions of capitalism, which moved from small towns to super cities, from the intimacy of the shop counter to the anonymity of the factory floor. In this new terrain of anonymous capitalism, the quintessential commercial experience was the interplay of actors—buyers and sellers, employers and employees—who had no overlapping experience or interests beyond the economic. A robber baron could blithely sign off on the brutal conditions in his mills, for he never had any fear of being provoked to paroxysms of shame by his social peers. They would never set foot inside them, and those who did on a daily basis were members of another community altogether. 

This is not to say that, with the advent of anonymous capitalism, all commercial engagements would inevitably be given over to the grossest conduct, merely that moral correctives would come about in two ways that Adam Smith never put much stock in: the prod of conscience and the power of markets. Perhaps it was the case that more than the occasional merchant would be guided by an inner light, routinely preferring what is right to what is merely expedient; and, who knows, maybe we would discover that the natural tendency of markets, when liberated from social suasion, is to reward us for saintly behavior. To Smith, however, the first case would have seemed exceptional, the second utterly unlikely. Intimate capitalism never assumed that men were angels but rather that people, when presented with the choice of losing a buck or looking like a bum, would actively prefer the former. They would have to choose between doing well and doing good, rather than simply trusting that the two always went hand in hand.

In a fashion Adam Smith could never have predicted, we have seen something akin to a revival of the social forces that once shaped intimate capitalism.

The rise of anonymous capitalism changed the stakes of self-interest, for it largely eliminated the social sting of bad conduct in moneymaking endeavors. This made for a commercial status quo that persisted for over 150 years, long enough that, when I began teaching business ethics in 2005, I treated it as an essential feature of contemporary capitalism, a quality which, if it didn’t exactly inspire the aforementioned parade of horribles, it no doubt paved the way for them. 

But things have changed in the past 15 years. In a fashion Adam Smith could never have predicted, we have seen something akin to a revival of the social forces that once shaped intimate capitalism, a turn of events courtesy of the internet. 

“The worst dental service I have ever experienced over my 60 years of life,” one William H. declares in an online review of the practice I visited. “I could have cleaned my teeth with a toothpick and done better.” Another, John H., seconds the verdict. “The ‘teeth cleaning’ was literally just [a] few scrapes followed by flossing,” he writes. “But then I was asked if I wanted a ‘deep cleaning’ for an extra $300!” He notes that he declined. “I hope this place burbs [sic] to the ground.”

By the time I arrived, nearly six months later, the office hadn’t gone up in flames, but if I’d read these reviews, or most any of the other 93 on the website Yelp, where the practice has a wince-inducing rating of 2.5 stars out of a possible 5, I would have saved myself the trouble. 

Yelp, which started less than a year before I began teaching in 2005, has become the principal hub in an ecosystem of online gossip that is helping to re-intimize capitalism. In the second quarter of 2019, it reported a monthly average of nearly 140 million unique users. That’s far less than Facebook or Twitter or other sites that similarly disseminate virtual gossip, but Yelp’s outsize influence is due to the fact that its explicit mission is to provide a word-of-mouth forum for commendations and criticism of commercial actors. If I want to know something about the credit and character of a counterparty—whether it be a potential employer or a place for deep-dish pizza—Yelp is the obvious place to turn. 

Similar to other consumer-sourced websites, what Yelp has effectively done is to recreate the lines of gossip that once fed intimate capitalism and the social forces that patrolled self-interest. In his work, Smith never envisioned a world where the overwhelming majority of people we do business with are alien to us, but this became the standard experience with the rise of industrialization and urbanization, when the number of commercial counterparties the average person did business with grew far beyond the reckoning of intimate relationships. 

The advent of the internet has not changed this impersonal state of affairs entirely. I still couldn’t tell you much about the men and women who trim my hair, fix my brakes, or flip my burgers, certainly no more than they might say about me. Some among them may become friends or neighbors, but unlike the world of Adam Smith, I can’t assume as much of the people I do business with.

No, in an ironic twist Smith would have uniquely appreciated, the internet has revived the power of gossip to shape capitalism while also removing any traditional sense of intimacy as a trust requirement in commercial relationships. Consider it: we have no human connection at all with the horde of online merchants who peddle the goods that supply our daily needs—goods that, even until a few years ago, we always bought in person. We don’t know these individuals, and in order for the wondrous efficiency of online marketplaces to have its full effect, we can’t. And yet, crucially, if we couldn’t be certain of their credit and character, we wouldn’t want to know them in the first place. It is only because of the eagerness of other people we don’t know to gossip online about their experience as buyers that we know which sellers to patronize (and, therein, economically reward) and which to effectively put out of business. 

The internet now polices capitalism in the way that word of mouth around town once did, and while it lacks something of intimate capitalism’s promised social stigma for bad behavior—when I leave negative feedback for SqueekeePants27 on eBay, I don’t know who he is and neither do his friends—anonymous capitalism nonetheless more immediately, and implacably, doles out economic justice to commercial miscreants. 

For example, a study of Yelp conducted by Harvard’s Michael Luca finds that a “one-star increase in [a merchant’s] rating leads to a 5–9 percent increase in revenue.” Such results shouldn’t be surprising, for they simply affirm the quiet verdict of common sense. No one actively seeks out bad service or shoddy treatment; we stumble into it, as I did in the case of the dentist whose character had no credit. How we may warn ourselves ahead of time, readily and reliably, and how we may alert others in turn, are opportunities capitalism originally promised. Now, after a long spell, it seems to have reclaimed them.

John Paul Rollert is adjunct professor of behavioral science at Chicago Booth.