Seeking the limits of the market

I’ve just finished reading Michael Sandel’s What money can’t buy: The moral limits of markets, a book which has attracted quite a bit of media attention. It is an important book. Its importance does not lie in its originality: many of its arguments already exist in the literature. Its importance lies in its form: it brings the arguments out of the dusty corners of academic debate and frames them in an accessible way, rooted in vivid examples. The author’s renown guarantees a broad audience. And its importance lies in its timeliness. The fallout of the financial crisis, brought about largely by inadequately regulated markets, has led to a questioning of this model of society. But, at the same time, a prominent policy prescription for dealing with the sovereign debt crisis is the extension of the marketising model, seemingly as far as possible. Hence whether there are limits on what sorts of things should be subject to market forms of organisation is – or, at least, should be – a pressing question.

Sandel’s starting point is the Anglo-American move from a “market economy” to a “market society”. No longer are market mechanisms confined to that part of society we refer to as “the economy”. Increasingly they have colonised vast swathes of “non-economic” social life. The price mechanism has come to replace other means of allocating resources such as queuing. And even the humble queue can be subverted by those willing to pay professional line standers to do their queuing for them. Policies such as immigration have, in the US, become marketised: citizenship is available at a price to those willing to invest on a sufficiently large scale. In the face of presumed and actual taxpayer resistance to funding public services adequately, commercialisation has penetrated areas of life such as criminal justice, sport, education and civic infrastructure in ways that would previously have been considered unacceptable. Birth and death are increasingly subject to the rigours of the market in ways that would previously have been considered inappropriate or immoral.

These developments can be seen, in part, as an outworking of the economic imperialism ushered in by Gary Becker’s Economic Approach to Human Behaviour. Once it was accepted that any type of social relation can be analysed as if it were a market and subject to rational calculation – for example, the “market” for marriage and divorce – it is a short step for the incautious to assume that it actually is a market, which can and should be influenced by tweaking incentives. And it is a relatively short further step to thinking that even if a particular area of social life clearly isn’t a market then it would be improved by a dose of marketisation. Such views draw on the seemingly miraculous theoretical properties of markets to allocate resources efficiently. They pave the way for much of the policy agenda we have witnessed over the last thirty years. They provide a rationalisation for contemporary arguments that public service “reform” should primarily mean provider diversity which, in practice, means handing activities over to the private sector.

There is, of course, a huge irony here. Belief in the miraculous properties of markets gained currency in policy circles just at the time when researchers elsewhere in the economic ecosystem were demonstrating that the foundations of the argument for market efficiency were not only questionable but incoherent. But that is another story.

Sandel’s purpose is to ask whether this insidious marketisation matters. His view is that in some cases it may not. But if you problematize the premises of the economic argument then things get more complicated.

The first premise of the economic argument – typically unexplored – is that the method of providing a good or service makes no difference to its character. A service that has previously been provided on a voluntary basis or by government relying on a strong professional ethic can be marketised and provided for profit and its substance remains constant. This is the premise behind much of the change proposed under the current government’s Open Public Services agenda. Sandel’s argument is, to the contrary, that such a change in delivery can fundamentally alter the nature of the good, service or social exchange: to marketise is to demean or degrade. It is to take activities underpinned by a sense of citizenship or vocation and transform them into mere commercial transactions. And society is impoverished as a consequence.

This is an old argument. It is at the core of the social policy classic The Gift Relationship by Richard Titmuss, published in 1970. Titmuss argued that the British system of voluntary blood donation was preferable to the US commercial system because it meant that people donated blood out of a sense of duty and common humanity not simply because they were desperate for money. The quality of the blood supply was higher as a result.

The second of Sandel’s key points is that we need to look more closely at coercion and corruption. A standard economic argument is that voluntary transactions that are freely entered are by definition welfare enhancing and therefore a good thing. So if someone wants to sell advertising space on their forehead in order to pay for their son’s schooling, then that’s up to them. This happened to a woman in Utah in 2005. She will, as a consequence, walk around for the rest of her life with the web address of a casino tattooed on their face. Economists would argue that as long as no one forced her to do it then it was a voluntary act that must have increased her welfare, otherwise she wouldn’t have done it.

Sandel’s argument is that this is a rather expansive and uncritical use of the term “voluntary”. One must be in a pretty desperate situation to consider permanently branding oneself for money. So the idea that this is entirely “voluntary” is questionable. Similar arguments can be applied to the activities of US “charities” who offer drug-addicted women money to be sterilized.

The point about corruption is not so much about illegality but corruption of purpose. Here Sandel argues that marketising access to certain goods or services fundamentally undermines their purpose or degrades their significance. To understand the point fully we must recognise that the purpose of a good or service is not necessarily simply a question of consumption. In some cases the way in which the transaction occurs can be freighted with broader social significance, which is lost by marketisation.

A relatively trivial example is the practice of gift giving, which is almost incomprehensible to a certain type of conventional economist. From an conventional economic perspective, giving someone a gift is hugely inferior to giving someone money to the equivalent value because the recipient can spend the money on something of their own choosing which, by definition, is more likely to bring them more satisfaction. But giving money is considered socially inferior. Why? Because it signals thoughtlessness, lack of attention, lack of care. These are concepts that economics struggles to capture. A thoughtful gift chosen with care can build a relationship. Pull a tenner out of your back pocket and handing it over is unlikely to have the quite the same effect.

Sandel brings out this issue of the moral content of transactions by asking whether there is a difference between a fee or a fine; a question I’ve discussed with my economics of public policy students for many years. If you change polluters a fee then as long as they are willing to pay the fee they have bought a licence to pollute. Whereas if you fine them the same amount of money for polluting then this sends a signal that their behaviour is socially unacceptable. They have transgressed. The simplistic economic argument is that fining polluters is “regulation” and therefore likely to be inefficiency compared to fees or taxes which use the price mechanism to curb polluting activities.* The argument is blind to the moral dimension.

The final key point that Sandel makes is that economists’ arguments regarding the benefits of markets for improving resource allocation are flawed in the real world. The economic theory can be compelling. If we offer a product on the market then those who value it most will be willing to pay most for it. Thus markets efficiently allocate resources to their highest value uses.

Sandel’s point is not a new one, but it is an increasingly important one. The economic argument becomes questionable in a world of major resource inequalities. In the real world the consequence of marketising may simply be that those with the most money gain access, not those who value the good the most. The (relatively recent) arrival of corporate boxes at sporting events is a vivid illustration: the boxes are often populated with people paying little attention to the game, while real fans are unable to get into the ground. The sports team may make more money as a result, but if sport is an experience collectively created – not just what happens on the pitch but also in the crowd – and most meaningful when democratically shared then is it not impoverished by segregation by income?

The textbook economic argument says that if we are unhappy with the distributional consequences of the market then government can rearrange initial endowments to achieve a different outcome. That is, governments should tax those with more resources and enhance the income of those who have little. Then stand back and let the market work its magic. Of course, while the argument may be coherent in the textbook, it falls down in real life. The move from the market economy to a market society has been accompanied by increasingly virulent opposition to redistribution of this type. In contrast, the rich stay rich and everyone else gets poorer.

Over many years high profile economists have suggested marketising all sorts of things. And it is in the rejection of such proposals that we start to trace the limits of markets. For example, there have been suggestions in the US that adoption services should auction babies for adoption. Prospective parents who value the babies most highly would be willing to pay the most. From the perspective of conventional microeconomics, the logic is impeccable. Yet, the idea that babies will be allocated different monetary values, that there may be babies – perhaps from minorities or with impairments – that have low value or are difficult to “sell” – causes most people to recoil in horror. There is something immoral or unethical – words that don’t feature strongly in the economists’ lexicon – about trading in humans, and not only slaves.

But perhaps it is only a matter of time before some of these qualms need to be put aside. After all, money is short. We can’t afford to waste resources on “inefficient” public services allocating resources “bureaucratically”. Markets can deliver salvation.

Sandel’s main point is that if we don’t like that prospect then we should be willing to debate the limits of markets and be explicit about when and why they are unacceptable. This, however, raises prodigious challenges.

The market story is beguiling. It offers policy makers seemingly simple verities and a short cut to utopia. There is also, admittedly, an austere and orderly beauty to the general equilibrium story. It is just unfortunate that it bears no relation, even as an approximation, to reality.

The alternative is a more subtle argument. It is also a more messy argument, requiring case by case consideration. It is more qualitative and appeals to concepts of social capital, citizenship or civic virtue that are rather less easy to pin down. It requires a much richer appreciation of social norms and social reality than that offered in a typical economics textbook.

Sandel points out that determining the limits of markets will require public debate. It will require resolution of differences and the construction of common understandings. It is, therefore, precisely the opposite of the impersonal market mechanisms that have come to dominate:

Such deliberations touch, unavoidably, on competing conceptions of the good life. This is terrain on which we sometimes fear to tread. For fear of disagreement, we hesitate to bring our moral and spiritual convictions into the public square. But shrinking from these questions does not leave them undecided. It simply means that markets will decide them for us. This is the lesson of the last three decades. The era of market triumphalism has coincided with a time when public discourse has been largely empty of moral and spiritual substance. Our only hope of keeping markets in their place is to deliberate openly and public about the meaning of the goods and social practices we prize.

Somewhat disappointingly Sandel pretty much stops there. He offers not guidance on how to instigate such debates. He does not reflect explicitly upon the fact that current social arrangements militate against such debates; that powerful forces have an interest in stifling such debates; that the very faults he traces in market society are a barrier to the transformative deliberations he seeks.

But perhaps that was not his objective in What money can’t buy. He has performed an important service in sensitizing readers to the issues and starkly highlighting the consequences and contradictions of the way in which society is changing.

But these rather more practical questions will need to be addressed if the limits of marketization are to be identified, and enforced.

* There is more sophisticated economic argument that draws a somewhat different conclusion.

Image: © Perysty –

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