Module 5: Markets and Morals

The concept of the free-market is a polarizing topic in politics. For some, the free-market is the means to overcome the sources of conflict and misery that have plagued society: war, coercion, and poverty to name a few. It is posited that the free-market allows people to come together in a value-neutral forum to exchange goods and services. Further, proponents argue this facilitates prosperity and peace. On the opposite side, the ‘free’-market is argued to actually be a corrosive force on society. It is seen to generate inequality, lead to environmental degradation, and ultimately undermine democratic processes. To further complicate things, debates on the free market have been embedded in larger political, economic, and social debates. Debates on the Great Depression of the 1930s contested the role of the free-market. Some argued that an unregulated and overly exuberant stock market led to the economic crash while others argued it was government interference in the market that led to the protracted nature and severity of the depression.

These are debates we still hear today, especially since the global economic crisis of 2008.

The role and benefits of the free-market were core debates during the Cold War between the USSR and the US. The US equated the free-market with freedom, prosperity, and democracy while the USSR equated it with oppression, immiseration, and imperialism. From the 1970s, and with the ascendency of neo-liberalism, the free-market again has been fiercely debated. For those in favour of neo-liberalism and market deregulation, they sought to release the power of the free-market, not only to shore up the weaknesses of the global economic order but also to make Western economies more competitive. For those against neo-liberalism and market deregulation, they sought to demonstrate the negative impact of the free-market on social policy, social cohesion, environmental protection, and democratic freedom. With the end of the Cold War, it was argued that democracy and the free-market had won. However, In the 1980s and 90s, the role of the free-market was again contested in the Latin American Debt Crisis. For advocates, the unregulated free-market would force developing states to live within their means, purge uncompetitive industries, check unsupportable debt loads, and ultimately build stronger more prosperous states. For its critics, the unregulated free-market was eroding the ability of the state to provide basic social services, breaking down organized labour, and undermining democratic legitimacy. Further, they argued it was also allowing primarily western multi-national corporations to exploit markets, cheap labour, and access to resources in these states. These debates have continually recurred as the world has experienced a series of economic crises: the Latin American Debt Crisis in the 1980s, most notably in Mexico and Argentina; the Asian Financial Crisis in the 1990s, most notably in Thailand, South Korea, and Indonesia; the Global Financial Crisis in 2008; the Greek Debt Crisis, and the European debt crisis more generally since 2014.

At the core of these debates is not just a discussion on the efficiency or productive capacity of markets, but a debate on its impact on social and political organization, on the ‘good life’, and on questions of justice. Before we can engage in such questions, however, we need to first look at the argument in favour of the free-market. We can then look at the criticisms of this position. Finally, we will engage in a discussion of the free-market and justice.

Many economists avoid a discussion on the ‘morality’ of markets. For them, the discussion isn’t about morals since they see the market and the study of the market through an economic lens as neutral and value-free. This is a position both Utilitarianism and Libertarianism would have sympathy with. And there is some value to such a position. When dealing with questions of economic efficiency or with questions of the equitable allocation of resources, the market is a good starting point.

It is not a perfect answer. Market responses certainly have both inconsistencies and/or negative outcomes that need to be dealt with, but a market approach does provide insight. And economists are keenly aware of some of the areas that the market runs into problems, such as the provision of public goods or monopolies.

Many economists have attempted to both identify the causes of such market failures as well as the potential consequences that may stem from them. But even then, they often shy away from speaking to the more normative questions of fairness, justice, and equity. However, this is a bit disingenuous because even if we restrict the subject of enquiry to ‘efficiency’, we are dealing with questions of morality. Economic efficiency refers to the optimal allocation and utilization of resources within a given ecosystem. As such, discussions of economic efficiency are about maximizing the system as it is. The system ‘as it is’, is normative. It defines what is good and what is right; who has what kind of power; what defines justice. The free-market may promote economic efficiency, but it is neither value-free nor neutral.

That being said, some people do make explicit morality claims on behalf of the free-market. Economic journalist Martin Wolf is one of those people. In a 2009 Foreign Policy article, he argues that the market is the best economic arrangement ever devised. That it has produced two centuries of economic growth and that has significantly reduced abject poverty worldwide. This is a form of practical justice. Further, he argues the market is built on and encourages the development of moral qualities. We have engaged with some of these arguments before about the free-market: that it supports individual liberty, encourages democratic processes, and has established societies that are more equitable and less hierarchical than at any other time in history.

Further, Wolf posits the market encourages “trustworthiness, reliability, individual initiative, civility, self-reliance, and self-restraint.” While such personal characteristics are often put to the service of selfish activities, they are not necessarily limited to this nor are they bad when they do. If each individual in society is maximizing their welfare through selfish activities, the whole is better off as long as such activity does not impinge on the abilities of others to do likewise. However, he also argues the free-market contributes to altruism. First, the free-market generates the wealth that creates the space for altruism to flourish. Second, the free-market is part of the larger socio-economic structure that has privileged individualism and individual rights, giving rise to predominant contemporary issues like human rights and environmental degradation.

Beyond altruism, the free-market requires the right to own and use personal property which contributes to the principles of liberty, the rule of law, and ultimately, democratic governance. In the end, Wolf argues that the free-market is moral because it acts on and gives substance to the desires to the many; it privileges individual rights and most specifically the rights of liberty and property; it has produced outcomes that are quantifiably better than any other economic system – and by extension political system – yet devised. It is moral because it promotes human freedom and social welfare. These are arguments that resonate to a greater or lesser degree with both Utilitarianism and Libertarianism, albeit in different ways. But the question remains, is it just?

Some economists make implicit claims on the morality of the free-market, arguing that the markets are the means by which peace and prosperity can best be achieved. Others, like Martin Wolf, stake explicit morality claims on the free-market, arguing the free-market both promotes individual liberty and human welfare. However, such positions are often built on a best-case scenario within which free-markets operate. Free-market theory argues that buyers and sellers voluntarily meet in an unregulated market to buy, sell, or trade their labour/private property. The forces of supply and demand set the terms of this exchange until a state of economic equilibrium is reached. At the point of equilibrium, maximum efficiency has been achieved. For economists, maximum efficiency is also the point of the highest social good.

However, for these free-markets to be truly free and competitive, a few further conditions must apply. Consumers must have access to nearly perfect information in order to be fully informed. Armed with complete information, actors can make rational decisions to maximize their interests. In order to be competitive, there should be low barriers to entry for new sellers in the market. This increases the number of sellers competing for consumers, encouraging innovation, lowering prices, and avoiding monopolies. However, the question remains, are free-markets just?

Sandel posits two ways that the justice of the free-market can be questioned. First, are free-markets truly ‘free’? Second, are there some things that the free-market shouldn’t commodify or that in so doing produces ‘unjust’ outcomes? Let us start with the question of whether the free-market is always or mostly free in practice. In order for the market to be free, individuals must voluntarily engage in the process of exchange from relatively equal positions of power. In other words, people must not be coerced or compelled into the process of exchange because of inequality.

Sandel supports this argument by looking at the ‘voluntary’ army in the United States. The US has made a large military commitment around the world, from active engagements in Afghanistan, Iraq, and Syria and more covert activities in places like Yemen and Somalia, to formidable standing defence commitments at home and around the world. To this end, the US has 1.3 million active duty service members.

Sandel looks at how this voluntary military is achieved through market forces: the military actively recruits individuals to serve by offering a competitive compensation package. This is a voluntary exchange: people freely choose to enlist in exchange for a stipulated salary and benefits. Further, under the logic of the free-market, each party will only enter into this agreement if they are better off in so doing. The demands of Libertarianism are met since the exchange is entered into freely and the alternative of conscription is avoided which would severely restrict individual liberty. The demands of Utilitarianism are met since everyone has maximized their own utility with no one being made worse off in the process. However, Sandel questions the justice of this arrangement. He suggests that the motivation to enlist in the military is often a function of social inequality. The argument is that people may be enlisting not because they have always dreamed of joining the military or they have a deep sense of patriotism. Rather, they are enlisting because they have a lack of other choices or because enlistment is seen as a means to pay for higher education, therefore providing social mobility. In this case, it is poverty, economic disadvantage, and the lack of means for social mobility that compels people to enlist. Sandel argues this is a form of compulsion. It might not be the ‘press gang’ common in European navies during the 17^th and 18^th centuries, but it is coercive nonetheless. Therefore, the free-market in the case of the US voluntary military is neither fair nor free if the societal conditions in which it operates have high-class discrimination and high levels of inequality. Perhaps mandatory military service would be more just. To be clear, this does not mean that perfect societal equality is necessary to set the conditions for a truly free market to operate on issues like military enlistment. Instead, as Sandel argues, the question is “at what point do inequalities in the background conditions of society undermine the fairness of social institutions (such as a voluntary army) based on individual choice?” Such arguments can be extended to other issue areas such as the sale of organs, or even of a child, due to severe inequality. If all you have to sell in the free-market is your child, and not doing so may endanger the lives of you and the rest of your family, is it really a free market? Or is your participation in the market place coerced?

A second concern is that the free-market may achieve greater efficiency but that doing so for certain goods may create injustice or may undermine civics. In terms of injustice, the free-market in certain circumstances might devalue goods and norms that have moral significance in society, like human dignity for example. The commodification of such goods and social practices may therefore result in harmful outcomes. Sometimes commodification can change the meaning of goods or actions. In an article that specifically contrasts market versus moral reasoning, Sandel provides some examples of this. He cites a law professor that suggested a global tradeable refugee quota to deal with the pressures of increased irregular migration. This idea was based on the economics behind the tradable pollution permits discussed in global environmental debates. The system seems quite rational: each state is given a quota of refugees based on national wealth and that these quotas can be bought and sold in the free-market. But does this not change the meaning of a refugee? Does it not dehumanize real people? Turning men, women, and children who have faced life-threatening conditions into financial benefits and burdens?

Or how about another even more radical proposal, this time for global overpopulation: use the free-market to trade licenses for children. Every woman on the planet would be given a set number of child permits which can be bought or sold in the free-market. It is argued that not only would this regulate overpopulation, but it would also reduce inequality since the affluent could afford more children and the poor could reduce their poverty by selling permits. But doesn’t this impinge on individual liberty? Does it not make children a luxury item like a high-end piece of jewelry?

Finally, let us turn to a real-world example, Indian surrogacy centers. Does commercial surrogacy create similar problems? The surrogacy industry is worth an estimated 1 billion dollars to the Indian economy. Surrogates are paid an estimated 6 thousand dollars to help approximately 12 thousand foreign couples a year have children. This is an attractive proposition since the average national earnings in India are 215 dollars a month. On the face of it, this is a win-win situation: each party enters into the agreement freely and each benefits from the interaction. We could critique this transaction under the same logic as the voluntary army: global inequality creates a degree of compulsion. However, commercial surrogacy is also problematic from the perspective of commodification. Does this degrade the value of children, of women’s bond with children, of birth itself? Sandel asks: does the commodification of surrogacy treat children and childbirth as instruments of profit? And, if so, is this just?

The free-market is also contested in terms of civic duty, for example sitting on a jury, defending the country, and holding public office. The application of the free-market often creates feelings of angst in the public. There is a sense that such roles constitute a ‘duty’, an obligation of citizens towards the body politic. There is a general sense that jury members should not be paid, it should not be a job. The act of dispensing justice is a core societal concern, a part of democratic governance, and a rightful duty of citizens. It may impose a hardship on the individuals chosen, but it is argued to create a sense of identity and solidarity with the nation. The application of the free-market to jurors undermines this civic aspect.

Similarly, many people have objected to applying the free-market to the military. As noted above, the argument could be made that a voluntary military is unjust if societal inequality incentivizes enlistment by those who have been marginalized in society. But it can also be critiqued from a civics standpoint. First, if the US military represents less than 1% of the population, there is very little constraint on the government’s use of the military. This is especially true if very few members of Congress have children in the military. This represents a disconnect between the citizenry and the soldiers as well as between the political leadership and soldiers. Second, the US military has increasingly relied on private military contractors, also known as mercenaries, to fight on its behalf. Using companies like Academi, which is more recognizable by its earlier name Blackwater, the US has been able to take on missions it doesn’t want to publicize, delegate jobs that may cause embarrassment, and extend military action without the fear of political backlash from body bags coming home.

From the perspective of the free-market, this is a win-win situation enabled by the logic of exchange. Both sides get what they want: the government can supplement its military capabilities as needed, and both companies and soldiers earn lucrative contracts. But for many, this is highly problematic. Even Jean-Jacque Rousseau argued this in 1762 when he said that “as soon as the public service ceases to be the chief business of the citizens, and they would rather serve with their money than with their persons, the state is not far from its fall”. Is it possible to justly outsource civic duties? This is a question we will return to later in this course.

 

 

 

 

 

Now that we have looked at the arguments in favour of the free-market and those against the free-market, where do we stand in relation to justice? Building on both module three and module four, we can argue that the free-market promotes justice under two conditions: if it leads to increased welfare or if it promotes individual liberty. And by these standards, the answer is… the free-market is just but only in some cases and under some circumstances. Lets first look at the role mentioned, that of the free-market in promoting welfare. Those who advocate in favour of the free-market as a means to achieve economic prosperity and ultimately international peace, have a point. Martin Wolf is not incorrect when he argues that capitalism operating through the free-market has generated an enormous amount of wealth over the past 200 years. He is also correct in stating that the percentage of those suffering under abject poverty, specifically those living under 1.25$ a day, has dropped dramatically. Further, if we look at the role of the free-market in creating an interdependency between actors, then peace has also been enhanced. And all of this supports the assertion that the free-market has increased welfare and can therefore claim to promote justice.

However, that being said, the free-market has also generated a significant amount of inequality. It is deeply associated, both historically and contemporarily, with the structures of colonialism and imperialism internationally and class divisions domestically. And these events and processes suggest the market is neither just in nature nor does it promote justice in welfare. Things like inequality, imperialism, colonialism, and compulsion are not the words we generally use when defining a just system, action, or policy.

Further, there are some goods or processes that are devalued through the free-market, from civic duty to human dignity. There is a sense that using the free-market to hire foreign mercenaries, or even private military contractors, to fulfill state military objectives, divorces the public from state-sponsored violence and devalues civic engagement. Similarly, using the free-market to commodify surrogacy, refugees, or overpopulation can dehumanize both the processes involved and the people impacted by them. Even a positive outcome, like increasing the number of transplant organs available through market forces, is a problem for many people who argue it becomes a prerogative of the rich. This devalues the lives of all but the most affluent.

These examples suggest the ability of the free-market to increase welfare and therefore make a claim of being just, is either limited or flawed. How about liberty? Does the free-market promote individual freedom and individual rights? Well, again, yes, kind of. The free-market certainly does require the right to own and use personal property which contributes to the principles of liberty, the rule of law, and ultimately, democratic governance. In theory, the free-market allows individuals to enter into agreements to exchange labour or property without compelling them to do so. In theory, people will only agree to buy, sell, or trade their labour or property if they will benefit from the transaction. Otherwise, they will refuse to the terms of exchange. However, as we discussed earlier, in conditions of stark inequality, the free-market is not as ‘free’ as its proponents would have us believe. If people enter into the market not because they ‘want to’ but because they ‘have to’, the justice of the free-market is questionable. If we feel compelled to enter into exchange, how ‘free’ are the choices we make in the free-market?

This module has sought to introduce and problematize the concept of the free-market and its application to the concept of justice. The idea and role of the free-market play important roles in the arguments of Utilitarianism and Libertarianism. For Utilitarianism, the logic of the free-market is a means to assess the relative utility of policy or actions. It allows the reduction of policy and actions to a common measurement in order to facilitate a cost/benefit analysis. General welfare can be one such common measurement, but policy or action can also be reduced to currency, or a dollar figure, in order to undertake a cost/benefit analysis. And in so doing, questions of ethics and justice can be decided through the free-market. Libertarianism utilizes the logic of the market in a different way. Libertarians are the most explicit in the endorsement of the free-market. As discussed in module four, Libertarians view the free-market as a spontaneous order whereby people freely exchange goods and labour according to their individual capabilities and desires. In such an order there is no need for centralized authorityf since each individual is meeting the needs of the other. Further, such free exchange is ‘just’ since Libertarians privilege the individual as the basic unit of society and the defence of the individual’s inherent rights to life, liberty, and property. Justice, in this case, is not about outcomes but rather it is about process and the degree to which individuals are able to exercise self-ownership over themselves and their property. Both of these positions to a degree make valid claims. The free-market has increased welfare. It has promoted individual liberty. But the free-market can undermine welfare by commodifying goods and processes that constitute important moral norms and processes in society. It has also generated inequality and has therefore arguably compelled many to engage in exchange. This leads us to question the degree of freedom some have in the supposedly ‘free’ market. In the end, the free-market has generated many positive outcomes in society. But does the free-market by itself promote justice? Or does it require something else to guide it towards justice?

Utilitarianism endorses the logic of the free-market in a search for a means to adjudicate moral dilemmas in the absence of either an agreed religious basis or strong aristocratic control over social values. Utilitarianism argues for the reduction of policy and actions to a common measurement. This enables choices to be made through a simple cost/benefit analysis. For example, policy or actions can be reduced down to a measurement of welfare whereby a choice can be determined by the degree to which each option maximizes overall happiness. Alternatively, a policy or action can be reduced down to currency, or a dollar figure, in order to undertake a cost/benefit analysis. And in so doing, questions of ethics and justice can be decided through the free-market. However, unlike Libertarianism, justice is determined by the outcome of exchange.

Libertarians are the most explicit in the endorsement of the free-market. As discussed in module four, Libertarians view the free-market as a spontaneous order whereby people freely exchange goods and labour according to their individual capabilities and desires. In such an order there is no need for centralized authority, since each individual is meeting the needs of the other. Further, such free exchange is ‘just’ since Libertarians privilege the individual as the basic unit of society and the defence of the individual’s inherent rights to life, liberty, and property. Justice, in this case, is not about outcomes but rather it is about process and the degree to which individuals are able to exercise self-ownership over themselves and their property.

Martin Wolf begins by arguing that the market is the best economic arrangement ever devised. That it has produced two centuries of economic growth and that has significantly reduced abject poverty worldwide. This is a form of practical justice. Further, he argues the market is built on and encourages the development of moral qualities. It supports individual liberty, encourages democratic processes, and has established societies that are more equitable and less hierarchical than at any other time in history. Further, Wolf posits the market encourages trustworthiness, reliability, individual initiative, civility, self-reliance, and self-restraint. While such personal characteristics are often put to the service of selfish activities, they are not necessarily limited to this nor are they bad when they do. If each individual in society is maximizing their welfare through selfish activities, the whole is better off as long as such activity does not impinge on the abilities of others to do likewise. He also argues the free-market contributes to altruism. First, the free-market generates the wealth that creates the space for altruism to flourish. Second, the free-market is part of the larger socio-economic structure that has privileged individualism and individual rights, giving rise to predominant contemporary issues like human rights and environmental degradation. Beyond altruism, the free-market requires the right to own and use personal property which contributes to the principles of liberty, the rule of law, and ultimately, democratic governance. In the end, Wolf argues that the free-market is moral because it acts on and gives substance to the desires to the many; it privileges individual rights and most specifically the rights of liberty and property; it has produced outcomes that are quantifiably better than any other economic system – and by extension political system – yet devised. It is moral because it promotes human freedom and social welfare.

In order for the market to be free, individuals must voluntarily engage in the process of exchange from relatively equal positions of power. In other words, people must not be coerced or compelled into the process of exchange because of inequality. However, the free-market often works in conditions of inequality and therefore its promotion of justice is in question. To be clear, this does not mean that perfect societal equality is necessary to set the conditions for a free market to support just policy and actions. Instead, as Sandel argues, the question is “at what point do inequalities in the background conditions of society undermine the fairness of social institutions based on individual choice?” Such arguments can be extended to issues such as a voluntary army, the sale of organs, or even of a child. If all you have to sell in the free-market is your child, and not doing so may endanger the lives of you and the rest of your family, is it really a free market? Or is your participation in the market place coerced?

In certain circumstances, the free-market might devalue goods and norms that have moral significance in society, like human dignity for example. The commodification of such goods and social practices may result in harmful outcomes such as changing the meaning of goods or actions. When applying the logic of the free-market to refugees, overpopulation, or surrogacy, are the individuals and processes involved are changed. Refugees are no longer individuals in need of protection, but rather they are a burden to be sorted out. Using a quota system on children to address overpopulation changes the idea of a child and of a family, into a luxury item for the rich. A similar critique can be applied to commercial surrogacy.