Tolerating a Little Unfairness to Some to Get a Greater Fairness for All
“It is not always recognized that to function best, morality should sometimes appear unfair, like most wordly outcomes. The craving for perfect fairness causes a lot of terrible problems in system function. Some systems should be made deliberately unfair to individuals because they’ll be fairer on average for all of us. Thus, there can be virtue in apparent non-fairness. I frequently cite the example of having your career over in the Navy if your ship goes aground, even if it wasn’t your fault. I say the lack of justice for one guy who wasn’t at fault is way more than made up by a greater justice for everybody when every captain of a ship always sweats blood to make sure the ship doesn’t go aground. Tolerating a little unfairness to some to get a greater fairness for all is a model I recommend to all of you.” (Charlie Munger: ‘Academic Economics’, in: Poor Charlie’s Almanack, p. 259 f.)
Let's say you were a navy ship’s captain dutifully doing your job only for your vice-captain to run the ship stupidly aground the moment you took a well-deserved break. Next, your career was completely over – despite everybody agreeing that it was not your direct fault. What a terrible, unfair experience! Unfair to the individual but valuable for the greater good – I find this tension extremely interesting. It also seems to go counter the current zeitgeist.
Now imagine you were tasked with making the navy fairer. You might suggest to have captain and vice-captain write down who is on watch and assign full responsibility to the one on watch. Somebody would object that the captain might then always shift the duty to his vice-captain whenever a particularly difficult situation was occurring. So maybe you add requiring them to scribble down a few lines on why they shift watches, together with both of them having to sign. Welp, what if they can’t agree? What if the captain uses their authority to push the vice-captain into unfair arrangements? You install a third party, watching to make sure things are fair. Congratulations! You turned a vessel built for war into a boat full of paper-shufflers.
A rather common – and convincing – trope in discussing bureaucracy is that it flourishes whenever there is a disdain for individuals to take responsibility. This can stem from the individuals itself but in many cases it stems from the organization that does not fully trust its individual members and seeks to replace trust with process. A prime example is when some single entity is caught misbehaving and therefore a rule or law is enacted to try to prevent this from happening again. Thus, a single misbehavior leads to a new rule for all.
Munger’s navy example adds another dimension to this idea: Instead of trust vs. process, the distinctive layer is fairness vs. greater good. If a setup works well all in all but allows a few to take advantage of others, it is definitely fairer to enact guidelines that close the respective loopholes – even while potentially worsening the overall efficiency of the setup. Travel policies in big organizations are a good example where everybody has to jump through sheer endless loops to recoup their business trip’s costs. This produces significant cost and weariness – but promises to prevent malicious actors from overspending for their own pleasure with the company’s budget. If this works, then it makes the whole process fairer – but also terribly inefficient and dreadful.
Yet a completely different example is the parable of the lost son in the bible. The younger of two sons claims some of his inheritance, moves away, loses all the money, and comes back to his father, begging for forgiveness and help. The father is overjoyed from getting his son back and immediately arranges for a big celebration, slaughtering a calf. Now the older son gets upset:
‘Look, these many years I have served you, and I never disobeyed your command, yet you never gave me a young goat, that I might celebrate with my friends. But when this son of yours came, who has devoured your property with prostitutes, you killed the fattened calf for him!’ (Luke 15:11-32)
As this parable is so well known to us, it is easy to gloss over how unfair it actually is – for the older son does have a point here! And the father’s reply with which the parable ends is not really that convincing: “‘Son, you are always with me, and all that is mine is yours. It was fitting to celebrate and be glad, for this your brother was dead, and is alive; he was lost, and is found.’” (ibid.)
Unfair. Similarly for the parable of the lost sheep where one of a hundred sheep goes astray and the shepherd leaves the herd alone to go look for the missing one – being described as happier about finding the one that went astray than about keeping the 99 orderly sheep. The perspective of the older son gets multiplied: 99 sheep now have reason to feel unfairly treated.
The ‘greater good’ is evidently not a quantifiable factor in the Bible:
In the eyes of the world, the shepherd in the parable may seem irresponsible, since he leaves ninety-nine animals behind to search for a single one. If responsibility for ‘all’ – a kind of set-theoretic notion of justice – were the deciding factor, then the shepherd or God would be poor shepherds of their flocks. They would be poor leaders because they do not keep an eye on ’all’ at all times. Relatively speaking, the individual does not count, since he ‘counts’ only as a similar element within a set, not as an irreplaceable individual. In contrast, the Christian parable form emphasizes the irreplaceability of the individual. (Dirk Rustemeyer: Ordnungen des Wirklichen, p. 236, own translation)
These biblical parables make clear that unfairness for individuals in the name of the greater good does not necessarily translate into a utilitarian assessment of quantifiable benefits. Instead, they highlight the need for individual unfairness to demonstrate the Christian ‘irreplaceability of the individual’.
Another way to unpack Munger’s quote is to focus on incentives. The situation described by Munger is obviously unfair but it sets the right incentives: As the navy you want to make sure your captain always feels responsible. As a captain you want to make sure your ship is always handled in the best possible manner, no matter who is currently steering it. You will think very well about which maneuvers to delegate as well as about who is your vice-captain and how to train them. The potentially fairer but inefficient paper-shuffling option, on the other hand, incentivizes to be smart about what to take responsibility for. In such a navy, you might overhear a conversation between ambitious captains talking about how you have to avoid taking responsibility for hairy situations if you want to move ranks.
This kind of question runs like a common thread across both private and public organizations. Consider having more wealthy regions subsidizing less wealthy ones. This applies to countries within the EU as well as regional states across Germany. There are very good arguments for such wealth transfers: Mostly to avoid stark imbalances that endanger the stability of a political body. On the other hand, however, such a system incentivizes spending money instead of saving it. It is always easier for politicians to gain the voter’s satisfaction by acting short-term. These redistribution mechanisms make the incentives even worse as running your state frugally earns you the duty to subsidize those that went on a spending spree.
The same tension hides behind questions on how strongly a state should intervene in saving local industries or protecting employment rights. Capitalism thrives from creative destruction. The overall economy benefits from quickly abandoning whole industries that have become obsolete in the global competition and just as quickly ramping up risky new endeavors. Such a dynamism requires companies to easily lay off vast numbers of employees when necessary – a precondition to go on a hiring spree when times are good or risks seem worthwhile. While such a setup has good chances to benefit a whole society over the longer term, it will necessarily create harsh conditions for individuals – and distribute those unfairly. You might just find yourself in an industry that becomes disrupted by new technology and therefore not only lose your current job but also the chance to get any other, similarly well-paying and respected job in the near term. Your skills have become obsolete virtually overnight through no fault of your own. This is brutal.
In the discussions about how work will be affected by AI, it is often said that the industrial revolution created more jobs than it made obsolete. Less often, yet also regularly said is that this process took many years. Whole pockets of generations of workers in a specific trade or a specific region have experienced bitter poverty because they fell into the gap between old jobs having become obsolete and new ones not yet created. It makes sense that a society tries to shield its members from such havoc.
Yet, it is argued that the differences in employment rights are the main factor accounting for how economic growth in the EU decoupled from the US, not being able to hold step in the last two decades. The main argument is that the liberal labor laws in the US allow companies to take high risks, hiring employees for moon-shot projects – because they can easily lay them off if the endeavor fails. In Europe, on the other hand, the high cost and trouble associated with laying off employees account for less job-creation and especially much less job-creation in risky endeavors that have a high chance of failing. Instead, if jobs are created, this mostly happens in old, stable industries that seldomly experience high growth-rates any more.
Where losing a job means a long spell of unemployment, workers are reluctant to join firms that might fail, experimental firms face higher labour costs, and fewer of them are created. Workers stay in safe jobs because they may not find another. The cost is not only to the workers themselves but to aggregate productivity. (Faccini, Kim & Miranda: Labour market origins of experimentation and growth: Why Europe is falling behind, VOXEU, Nov. 2026)
From responsibility in the navy via bureaucracy, Biblical parables and bureaucracy to economic incentives: “Tolerating a little unfairness to some to get a greater fairness for all is a model I recommend to all of you.”