The Biopsychology of Cooperation Part Five

In debates about equality, the theme of selfishness versus altruism obviously
plays an important role. But perhaps surprisingly, nature versus nurture is also
invoked. Those on the Left, in keeping with the socialist tradition, give much
more importance to nurture (the family and social environment) and they
frame policy debates in terms of adjusting family and social circumstances
using government intervention to create an equality of opportunity or
outcomes. Those on the Right, usually identifying themselves as conservatives,
are more inclined to favour policies that reward those already endowed with
talent and advantage. To the extent that talent is endowed by nature,
conservatives by implication give more importance to nature. (Fascists take
this dogma to the extreme.) Conservatives also reason that it is wasteful giving
resources to those without the talent to use them efficiently and note that
inefficiency is a moral issue. When it is pointed out that such people are
usually the poor, conservatives reply that rewarding the rich benefits the poor
by a trickle-down effect – which elicits from those on the Left the accusation of
hypocrisy and selfishness.72
Sarkar on Marx
Sarkar praised Marx as “a good man” with “strong feelings for suffering
humanity”. Marx’s writings, he added, “reflected his concern for the
downtrodden humanity”.73 He appreciated the dynamism of the communist
movement and in an obvious reference to the gradualism of the Fabian
socialists whose logo is a tortoise,74 he asks, “what is the use of tortoise-like
progress such as this?”75
Sarkar condoned Marx’s rejection of religion because how is it possible to
break the structure of the capitalist age without freeing people from “the
intoxicating effect of the opium of religion”.76 He recognized that Marx’s
rejection of religion was not a rejection of morality.
A group of exploiters loudly object to a remark that was made by the
great Karl Marx concerning religion. It should be remembered that Karl
Marx never opposed spirituality, morality and proper conduct. What he
said was directed against the religion of his time, because he perceived,
understood and realized that religion had psychologically paralysed the
people and reduced them to impotence by persuading them to surrender
to a group of sinners.77
However on the issue of materialistic philosophies, Sarkar is extremely critical
and Marx does not escape mention:
There are certain defective philosophies which think that the material
world is everything. When matter becomes everything, then matter
becomes the goal of life. And consequently, human existence, human
consciousness, the subjective portion of the human mind, everything will
become like earth and stone. That is why such a philosophy is detrimental
to human development. Karl Marx preached that defective philosophy.
You should keep your mind free from the bindings and fetters of such a
defective philosophy because it is anti-human, morally anti-human. It is
most detrimental to human existence and human development.78
The difficulty for those wishing to put Marxism into practice was that it had no
adequate theory of human psychology and spirituality. Even before all the
basic material requirements are satisfied, the human mind wants to express
subtler sensibilities. It might be drawn to the realms of music, sculpture,
architecture or indeed the entire universe of ideas. Or it might get the urge to
undertake some noble task or to explore the world of spirituality. This is not
comfortable territory for those caught in the dogma of materialism. Sarkar
notes the frustration experienced by those who attempted to implement the
Marxist doctrine.
Leaders like Lenin and Mao took up the task of materializing his
[Marx’s] ideas in the society. They were not bad people, but as they tried
to materialize the theory of Marx they encountered many practical
difficulties. Realizing that the theory was defective, they became
frustrated and started committing many atrocities. Stalin was a demon
who killed millions of people. This all occurred because of the inherent
defects of Marxism.79
For Sarkar, the apparently rapid demise of communism in the USSR and
Eastern Europe came as no surprise – the Marxist view of the human being was
fatally flawed and any attempt to establish a socio-economic system on that
view was bound to fail. Sarkar subscribes to a theory of history in which the
clash of civilizations plays an important role (although certainly not the only
role). The ideologies which underpin civilizations compete with one another
for the hearts and minds of people. The struggle for survival exposes the
weaknesses of an ideology and stronger ideologies will defeat the weaker. In
order to survive, an ideology must provide sustenance to subtler aspirations of
human mind and soul. And so it was that capitalism defeated communism,
because as Sarkar puts it:
whenever there is clash between self-centred and matter-centred theories,
the self-centred philosophy [capitalism] will win. The matter-centred
theory [communism] will never win. It comes as it goes after creating
enormous devastation, and it dies a black death.80
But the success of capitalism has brought its own defects into stark relief and it
is to these that we now turn.
Self-Centred Philosophy
The theory and the practice of capitalism have come under attack by socialists,
feminists and environmentalists for well over a hundred years. Yet despite the
battery of arguments brought against it, the system rolls on81 – a society that
promotes self-interest is not easily checked by intellectual argument.
Capitalism offers choice and exciting consumer goods in great abundance. No
matter that few of us can afford this abundance without going into debt. It has
taken the combination of an impending environmental catastrophe and a global
financial crisis to force people to question the wisdom of capitalism. Even
Time magazine, citing eight reasons for the Global Financial Crisis, criticized
the “the myth of the rational market” and “under-regulated” financial
This part begins with a brief introduction to the theoretical foundations of
contemporary capitalism. We then focus on the assumptions that the theory
makes about human economic behaviour and we find them to be highly
unrealistic. We next consider the emphasis on finance in contemporary
capitalism and conclude with a discussion of ethics in capitalism. Here we
must make a distinction between theory and practice and note that an
unsatisfactory theory of ethics leads to an objectionable practice.
A note on terminology. The terms neoliberalism and economic rationalism are
used to describe the modern practice of capitalism. Neoliberalism refers to the
policy agenda of deregulation, privatization and free trade. It is the 20th century
manifestation of 19th century laissez-faire. Economic rationalism refers to the
policy agenda that places economic efficiency (narrowly measured) above
other policy outcomes, such as full employment or environmental protection.
Neoclassical economic theory is used as the justification for both policy
agendas. This essay preserves the distinction between neoclassical theory and
neoliberal practice.
Neoclassical Economics
In an analysis of capitalism from the perspective of a scientist, mathematician
and environmentalist, Geoff Davies targets three defects of contemporary
capitalism: 1) its theoretical foundation known as neoclassical economics; 2)
its accounting system, in which all value (economic, environmental, social,
cultural and ethical) is reduced to dollar figures; and 3) its monetary system, in
which privately owned banks create money (an essential public service) as an
interest bearing debt to the themselves. Only the first of these concerns us here.
Neoclassical economics is essentially a mathematical edifice. It begins with a
set of assumptions and builds on these a mathematical description of prices,
investment, wages, interest rates and national economies. The following
critique draws heavily on Geoff Davies and economist Susan Richardson. The
final conclusion is simple – the assumptions of neoclassical theory are
profoundly flawed and therefore the conclusions drawn from a mathematical
elaboration of them, no matter how elegant, are also flawed. For the purposes
of this essay we note four assumptions of neoclassical theory:
• That every agent is actuated only by self-interest.
• That numerous agents motivated by self-interest produce an outcome
which affords the greatest utility for the greatest number.
• That free markets are the most efficient means to allocate resources.
• That free markets come to a stable equilibrium.
The term agent refers, in neoclassical theory, to an abstract human being,
family or firm. An agent is devoid of any behaviour other than to make
economic decisions and is devoid of any motivation other than to maximize its
self-interest. We identify this agent as Homo economicus and his/her
characteristics are explored below. We should note a corollary to the first
assumption – that Homo economicus is a valid model of human behaviour for
the purposes of studying and managing a real economic system.
The second assumption, often referred to as the invisible hand, was made
famous by the 18th century father of economics, Adam Smith. We shall return
to the concept later, but suffice to note here that, if the concept has any validity
at all, then it has been badly abused.
The third assumption requires that prices in a free market adequately reflect
productive efficiency for the given level of demand. This assumption is
severely compromised, however, because many of the factors which impinge
on efficiency (for example, environmental pollution) escape accounting by the
free market mechanism. These are referred to as external costs because they
are external to the market.
Concerning the last assumption, neoclassical theory is not able to account for
real world events, such as the growth and collapse of speculative bubbles,
despite these being the apparent cause of the current Global Financial Crisis.
According to Davies, a neoclassical economy never strays too far from a stable
equilibrium, because its mathematical architecture constrains it from doing
so.83 Consequently government treasuries around the world found their
financial models quite unable to cope with the Global Financial Crisis of 2008-
2009. Their models described an unreal world.
As a result of constant repetition to generations of students, the four
assumptions of neoclassical economics have acquired the status of axioms –
they have become self-evidently true and therefore beyond question. Again, it
is not the purpose of this essay to offer a detailed critique of capitalism, which
has been done by many others. Our primary purpose is quite modest – to
illustrate the inadequateness of Homo economicus as a model of human
economic behaviour so as to shine the spot light on a more appropriate model.
Homo economicus
Neoclassical economic theory makes three assumptions concerning the
behaviour of Homo economicus:
• That economic agents are well informed about the markets in which
they participate.
• That economic agents are rational, that is, they are able to reason
accurately with the information available.
• That economic agents are self-optimizing – that is, their only goal is to
optimize their gain or pleasure.
We should be clear about what is, and what is not, being claimed. Neoclassical
theory does not claim that human beings are purely economic beings. Nor does
it claim that their environment is purely economic. But it does claim that, for
the purposes of simplification and in order to get a grasp on matters of
particular interest to economists, one is justified in separating human beings
and their world into two parts – that part which pertains to economics and that
which does not. About the non-economic part, economists are agnostic – it is
simply not relevant. Here we find that neoclassical economics is attempting to
emulate the physical sciences, such as physics and chemistry, where the
accepted methodology is to experiment with isolated systems and to simplify
the description of those systems using mathematical models. For the physical
sciences, this has been a successful methodology. Its adoption by economists
has proved otherwise.
Feminists were the first to draw attention to the problem of applying ‘hard
science’ methodology to economics. What started as a set of simplifying
axioms or assumptions eventually became a set of dogmatic assertions about
the way people actually are. Economist Susan Richardson puts it thus:
The deductive character of masculine economics means that a whole
elaborate edifice has been constructed on the foundation of a few
assumptions about the way people behave in their economic life. Initially
the assumptions and the deductions from them were adopted to see
whether self-interested behaviour could, under certain conditions, lead to
socially desirable results. It was, in effect, a formal logical test of [Adam] Smith’s propositions about the efficacy of the invisible hand. But it
became more than that. Masculine economics slipped from the insight
that under certain tightly defined conditions, selfish, individual behaviour
and egocentric behaviour could produce economically efficient outcomes,
to the assumption that people, in their economic behaviour, are indeed,
individual and egocentric. These foundation assumptions of economics
have rarely been explicitly tested to see whether they have much
intersection with the way in which people actually feel and act in their
economic lives.84
Richardson finds the principle that every agent is actuated only by self-interest
to be depressing because we know it not to be true and yet its acceptance hides
other more noble possibilities.
This proposition can be (and has been) made to be tautological – any
action which is taken is preferred by the author to the alternatives which
are available to her, so it is self-interested. I find this depressing. It robs
humanity of the possibility of noble behaviour. It means that we cannot
distinguish morally or in other ways between private and greedy person,
the passionate believer in a cause, the person who devotes her life to the
well-being of others. All are equally said to be acting in their own selfinterest.
The proposition that all economic action is selfish diminishes humanity in
a second way. It has been applied by economists, to the effect that if the
slightest whiff of self-interest can be detected in an action then that selfinterest
is assumed to be the whole of the motivation. In fact, motivations
are multiple and complex. Altruism, duty, love, compassion and fellow
feeling are among them.85
In the end, argues Richardson, the assumptions of neoclassical economics
become self-fulfilling prophesies.
The assumption that people are entirely selfish in their economic
behaviour also rules out systematic inquiry into the extent to which
selfish or other motivations are affected by context and the behaviour of
others. If a person behaves altruistically and gets selfishness in return,
then she will feel not moral but a mug. This issue is important to the
crucial question – does a system which runs on and assumes selfishness
increase the total quantum of selfish behaviour, because this is the norm
and is rewarded, or does it diminish it because it economises on altruism,
saving altruism for circumstances where selfishness is hostile to human
well-being? Man-made economics does not explore these questions.86
Let Tim Hazeldine, Professor of economics at Auckland University, have the
last word. “Homo economicus is a selfish shit. There is no place for honour,
decency, empathy and altruism.”87
Since Richardson wrote more than a decade ago, considerable scientific
research has gone into understanding the way in which people make economic
decisions and the factors which influence them. The research is important for
two reasons. First, its insights inform the work of advertisers and marketing
departments. Second, and more importantly for our purposes, the entire edifice
of neoclassical theory depends on the validity of its assumptions about human
behaviour. The results, described briefly in the following pages, turn out to be
fascinating and often humorous, but damning for neoclassical theory. Now let
us briefly review each of the assumptions concerning Homo economicus.
People are not always well informed
Advertisers do not always tell the truth. As just one example, in October 2008
Coca-Cola in Australia employed a well-known actress to feature in a series of
ads which claimed that accusations the drink was full of caffeine, rotted
people’s teeth and made them fat were a “pack of lies”. The Australian
regulatory body that deals with false advertising ordered Coca-Cola to run
another series of ads saying that the originals were misleading.88
The participants in a market may not be equally well informed. Insider trading
deals depend entirely on having information not available to the majority of
others. Indeed successful trading in many markets depends on the participants
gaining an information advantage. Equality of information does not exist in the
real world.
People do not reason by logic alone
We know that people do not purchase rationally because many still buy
cigarettes, even when the packet displays images of diseased lungs. But
scientifically controlled experiments illustrate the irrationality of human
economic behaviour even where addiction appears not to be involved. Here are
just a few of countless observations:
• It is well known that placebos are often as effective as a medicine,
illustrating the so-called power of the mind. But it is also observed in
controlled experiments where subjects are required to purchase their
medicines, that the more expensive the placebo, the more effective it
• In controlled experiments where men are asked to play a simulated
financial investment game on a computer, those shown pornographic
images before hand make high-risk investment decisions compared to
those shown neutral photos.
• A study of 443 women, aged 18 to 50, found that the participants were
more prone to impulse buying in the luteal phase of the menstrual cycle
(10 days prior to menstruation).90
• Much research has been devoted to the best supermarket layout to
maximize sales. The placement of every product is guided by research.
Take just one example. Supermarkets around the world will typically
guide you on a path that takes you first past the fruit and vegetable
stands, leaving the sweets and dairy products till last. This is because
market research has shown that people are more inclined to buy high
fat, high calorie foods if they have first been given the opportunity to
select healthy foods.91
The conclusion we may draw is that economic decision making is not guided
by logic alone. A range of factors plays a role and in particular every ‘rational’
calculation is made in a complex physiological environment. Numerous
hormones and neuro-active substances are playing a role, either consciously or
People do not necessarily seek to optimize their gain
Numerous experiments have revealed that human economic decision making is
far more complex than accepted by the simple theory of maximizing gain. This
turns out to be true even for animals. For example, if two monkeys perform the
same task side by side, and one is rewarded a grape (big money) and the other
a cucumber (small money), the latter will become angry or work more slowly.
Yet if both receive a cucumber, both continue to work and eat happily.92
Conclusion: monkeys show an aversion to inequality. The reward does not
have to be physical – it can even be the affection of laboratory staff.
Humans also behave ‘irrationally’ in rejecting inequality, even if it means
walking away from a deal worse off or empty-handed. This is demonstrated in
experiments where two strangers (A and B) are asked to share a sum of money,
all of which is first given to A as if it belongs to A. The rules stipulate that if B
rejects what is offered by A, neither of them gets anything. Classical economic
theory says that gain will be jointly maximized if A gives just a small portion
of the money to B because B at least gets something rather than nothing and
A’s displeasure at giving up something is minimized. In practice, this seldom
happens. A usually offers close to half the money and B usually rejects any
offering much less than half.93
This behaviour cannot be explained by a theory which says that agents should
accept whatever reward they are given to maximize gain. And here lies a
problem because, as already observed, the entire theoretical edifice of modern
free market economics is built on supply and demand curves whose validity
requires humans to optimize personal gain. The theory breaks down because it
turns out that factors other than personal advantage also influence mental costbenefit
calculations. We will return to these other factors below.
In conclusion, the assumptions made by neoclassical theory concerning human
economic decision making have been shown to be flawed. It is hard to avoid
the conclusion that the entire mathematical edifice built on those assumptions
is also flawed.
The Culture of Neoliberalism
The reduction of the world of economics and commerce to a mathematical
abstraction has far-reaching consequences. When the goods we make and sell –
our clothing, books and clean water – are all reduced to dollar units to facilitate
accounting, it is but a short step to believing that manipulating dollar figures is
the be-all and end-all of business and that the reality behind those figures is of
little consequence. Psychologically, the shift is from a preoccupation with
production to a preoccupation with finance.
This shift in preoccupation has even been accompanied, Sarkar notes, by a
change in the meaning of words. The original Sanskrit word for a business
person was vaeshya and it meant “one who earns a living through the
production of goods”. The word survives in modern Indic languages but it has
come to mean “one who profits by trading and broking without being directly
involved in production”.94
The sophistication of financial instruments and services has increased steadily
over the centuries. However, the 1980s witnessed a singular transition in the
history of capitalism because, during this decade of deregulation, financial
instruments became an end in themselves rather than a means to production.
The transition from finance as means to finance as end in itself paralleled the
transition from Keynesian welfare capitalism to neoliberalism. One of the first
countries to make this transition (with much haste and social dislocation) was
New Zealand.95,96 Writing from his own experience as a politician and
bureaucrat administering the transition, Bruce Jesson compares workplace
culture before and after:
The difference between a productive culture and a finance culture is that
the world of the producer is tangible whereas the world of the financier is
ethereal. The old-style manager dealt with workers, customers and actual
productive processes. The modern manager deals with spreadsheets and
figures on a screen. The difference is expressed quite graphically in the
changed attitudes of managers to workers. The old-style manager knew
the workers, dealt with many of them personally and had a feeling of
some responsibility for them. Laying them off was a last resort. The new
finance-oriented managers have no contact with the workers and assume
that there are too many of them. Laying workers off is their first option.
The contrast between the culture of a production-based and public
service-based economy and that of a finance-based one is crucial. Each
has an ethos of its own. Production-based industries develop ways of life
that are unique to them. They evolve standards of excellence and pride in
their craft… People learn to cooperate in their work and form bonds of
Finance has an ethos of its own too, to do with financial efficiency and
competitiveness. From a financial point of view, there is nothing unique
about any particular industry. Finance is fluid, mobile, moving constantly
around the world. Finance recognizes no boundaries between industries –
or countries – and it treats each industry the same way…
At the same time, there is a fundamental contradiction in the ethos of
finance. On the one hand, there is all this obsession with efficiency; yet
the personal goals of the finance elite are apparently to make and spend
money as conspicuously as possible. There is none of the frugality of
earlier generations of capitalists, nor much apparent thought for the
future. The lavish lifestyle of the elite is matched, within their own
companies, by the emphasis that is placed on advertising and marketing.
Industry is increasingly dominated by the sales process, with its parasitic
caste of PR people and ad people promoting a culture of hedonism and
Of note in Jesson’s comparison is the deteriorating relationship between
managers and workers. When finance is everything, a business has no use for
ethics and the culture of cooperation. Margaret Thatcher, the person who
perhaps more than any other symbolizes the temporary triumph of
neoliberalism, once famously remarked: “There is no such thing as society –
there are only individual men and women.”98 It was a nonsense statement then,
as it is now. But its significance is clear. Society is the relationships between
people. If those relationships are made invisible, then the violence done to
them by neoliberalism is also made invisible.
The Ethics of Capitalism
Debates about the ethics of capitalism usually revolve around the ethics of
market outcomes because the market is supposedly the determinant of
everything that matters in a capitalist society. Markets are populated by
producers and consumers. In a free market, consumers are free to choose
whatever affords them the greatest utility. In this way, capitalism side-steps the
nature-nurture debate and instead asserts the supremacy of choice. Between
producers, however, neoclassical economics promotes the virtue of
competition, and here we find an echo of Darwin’s theory of natural selection
and survival of the fittest. Producers compete in order to satisfy consumer
choices and only those with the best business acumen survive or become rich.
However what commercial competition selects is not genes but behaviour –
and not moral behaviour but any behaviour that turns a profit. So we find that
as the culture of neoliberalism pervades a society, business, and social ethics
more generally, begin to decline. In this section, therefore, we are concerned
with the ethics of capitalism, both the theory and the reality.
The invisible hand
The ethics of liberal capitalism were articulated by Bentham and became
known as utilitarianism. According to this philosophy, the morally good is that
which makes people happy and that which gives them pain is bad. Bentham
made no distinction between pleasure and happiness. Of course, happiness and
pain are seldom unalloyed, so one state of affairs is better than another if it
involves a greater proportion of pleasure over pain.
Bentham went further however and claimed that each individual pursues that
which he/she believes will deliver them the greatest net happiness. We
recognize here the self-optimizing goal of economic agents – which is not
surprising because the utilitarians did the philosophical groundwork for
neoclassical economic theory. The concept of utility underlying supply and
demand curves arises from utilitarianism.
The utilitarian ethic says that individual desires and actions are good where the
outcome promotes the general happiness. But, and it is a significant ‘but’, the
outcome does not have to be the intention of the original action, only its
consequence.99 This takes us back to the previous century when Adam Smith
first articulated the metaphor of the invisible hand.100 His assertion was that, in
a free market, pursuit of self-interest (that is, profit) leads participants to
achieve the material advantage of society as a whole, as though “led by an
invisible hand to promote an end which was no part of his intention”.
Utilitarians take this argument two steps further: first, they equate a materially
optimal result (measured at the government level as per capita Gross Domestic
Product or GDP) with the greatest happiness of the greatest number; second,
they make an ethical jump and equate the greatest happiness of the greatest
number with the public good. Conclusion: self-interested action in free markets
leads to the public good. Also implicit in the above chain of reasoning is the
neoclassical definition of progress – an ever increasing per capita GDP. By
this definition, progress depends on free markets and the invisible hand.
Neoliberals ignore Adam Smith’s own doubts about the efficacy of the
invisible hand and his belief that “economics should be subordinate to and in
the service of society and morals”101 rather than define those morals. Noam
Chomsky argues that the invisible hand has been stretched to the point of
abuse. Adam Smith believed, he says, that the invisible hand would destroy the
possibility of a decent human existence “‘unless government takes pains to
prevent’ this outcome, as must be assured in ‘every improved and civilized
The 2001 Nobel Prize winning economist, Joseph E. Stiglitz, has a different
objection to the invisible hand – it is invisible because it is probably not there.
Adam Smith, the father of modern economics, is often cited as arguing
for the “invisible hand” and free markets: firms, in the pursuit of profits,
are led, as if by an invisible hand, to do what is best for the world. But
unlike his followers, Adam Smith was aware of some of the limitations of
free markets, and research since then has further clarified why free
markets, by themselves, often do not lead to what is best. As I put it in
my new book, Making Globalization Work, the reason that the invisible
hand often seems invisible is that it is often not there.
Whenever there are “externalities” – where the actions of an individual
have impacts on others for which they do not pay or for which they are
not compensated – markets will not work well. Some of the important
instances have been long understood – environmental externalities.
Markets, by themselves, will produce too much pollution. Markets, by
themselves, will also produce too little basic research. (Remember, the
government was responsible for financing most of the important scientific
breakthroughs, including the internet and the first telegraph line, and
most of the advances in bio-tech.)
But recent research has shown that these externalities are pervasive,
whenever there is imperfect information or imperfect risk markets – that
is, always.
Government plays an important role in banking and securities regulation,
and a host of other areas: some regulation is required to make markets
work. Government is needed, almost all would agree, at a minimum to
enforce contracts and property rights.
The real debate today is about finding the right balance between the
market and government (and the third “sector” – non-governmental nonprofit
organizations.) Both are needed. They can each complement each
other. This balance will differ from time to time and place to place.103
Ethics in the era of MBAs
It is not unreasonable to trace the source of the current Global Financial Crisis
to a failure of ethics, which in turn can be traced to deregulation and the
inadequate schooling of business students in ethics.
In the early 1990’s the then Professor of Business at Monash University,
Murray Cree, became interested in the ethical attitudes of his students. He
conducted a survey of some 380 students from three Australian universities in
the departments of business, accounting and marketing.104 Their average age
was 21. Cree asked two questions:
Q1: Would you be open to being involved in an insider trading scam if the
payment to you was to be $500,000?
Q2: Would you still be open to the proposition if you knew it would wipe
out your parents’ life savings?
The percent of respondents answering ‘yes’ to these questions is shown in the
following table.
Q1 72% 46% 63%
Q2 42% 30% 26%
Approximately two thirds of students surveyed were prepared to engage in
illegal and unethical practices for their own personal gain and one third would
have been prepared to destroy their parents’ life savings in the process. This is
a frightening result. As Cree points out, many of these same students would be
today’s executives in the banking and investment sectors and would be
managing large sums of money. If one is seeking the origins of the Global
Financial Crisis, Cree considers the results of his investigation to be “Enough

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