Markets' weak spot is bad ad
vice By Robert Skidelsky
Today, there seems to be no coherent
alternative to capitalism, yet antimarket feelings
are alive and well, expressed for example in the
moralistic backlash against globalization. Because
no social system can survive for long without a
moral basis, the issues posed by antiglobalization
campaigners are urgent - all the more so in the
midst of the current economic crisis.
It
is hard to deny some moral value to the market.
After all, we attach moral value to processes as
well as outcomes, as in the phrase "the end does
not justify the means". It is morally better to
have our goods supplied by free labor than by
slaves and to choose our goods rather than have
them chosen for us by the state. The fact that the
market system is more efficient at creating wealth
and satisfying wants than any other system is an
additional bonus.
Moral criticisms of the
market focus on its tendency to favor a
morally deficient
character type, to privilege disagreeable motives,
and to promote undesirable outcomes. Capitalism is
also held to lack a principle of justice.
Consider character. It has often been
claimed that capitalism rewards the qualities of
self-restraint, hard-work, inventiveness, thrift
and prudence. On the other hand, it crowds out
virtues that have no economic utility, like
heroism, honor, generosity, and pity. (Heroism
survives, in part, in the romanticized idea of the
"heroic entrepreneur.")
The problem is not
just the moral inadequacy of the economic virtues,
but their disappearance. Hard work and
inventiveness are still rewarded, but
self-restraint, thrift, and prudence surely
started to vanish with the first credit card. In
the affluent West, everyone borrows to consume as
much as possible. America and Britain are drowning
in debt.
Adam Smith wrote that
"consumption is the sole end and purpose of
production". But consumption is not an ethical
aim. It is not positively good to have five cars
rather than one. You need to consume in order to
live, and to consume more than you strictly need
in order to live well. This is the ethical
justification for economic development. From the
ethical point of view, consumption is a means to
goodness, and the market system is the most
efficient engine for lifting people out of
poverty: it is doing so at a prodigious rate in
China and India.
But this does not tell us
at what point consumption tips us into a bad life.
If people want more pornography or more drugs, the
market allows them to consume these goods to the
point of self-destruction. It oversupplies some
goods that are morally harmful, and undersupplies
goods that are morally beneficial. For quality of
life, we have to rely on morals, not markets.
No doubt it is unfair to blame the market
for bad moral choices. People can decide when to
stop consuming or what they want to consume. But
the market system relies on a particular motive
for action - Keynes called it "love of money" -
which tends to undermine traditional moral
teaching. The paradox of capitalism is that it
converts avarice, greed, and envy into virtues.
We are told that capitalism discovers
wants that people did not realize they had and
thus moves humanity forward. But it is truer to
say that the market economy is sustained by the
stimulation of greed and envy through advertising.
In a world of ubiquitous advertising, there is no
natural limit to the hunger for goods and
services.
The final moral issue is
capitalism's lack of a principle of justice. In a
perfectly competitive market, with full
information, models of the market show that all
the factors of production receive rewards equal to
their marginal products, ie, all are paid what
they are worth. The full competition and
information requirements ensure that all contracts
are uncoerced (there is no monopoly power) and all
expectations are fulfilled, ie, people get what
they want. Justice in distribution is supposedly
secured by justice in exchange.
But no
actually existing capitalist market system
spontaneously generates justice in exchange. There
is always some monopoly power, insiders have more
information than outsiders, ignorance and
uncertainty are pervasive, and expectations are
frequently disappointed. Justice in exchange has
to be supplied from outside the market.
Moreover, the endowments that people bring
with them to the market include not just their own
innate qualities, but their starting positions,
which are radically unequal. That is why the
liberal theory of justice demands at a minimum
equality of opportunity: the attempt - as far as
is compatible with personal liberty - to eliminate
all those differences in life chances arising from
unequal starting points. As a result, we rely on
the state to provide social goods like education,
housing, and health care.
Finally, the
claim that everyone is - under ideal conditions -
paid what they are worth is an economic, not a
moral, valuation. It does not conform to our moral
intuition that a CEO should not be paid 500 times
the average wage of his workers, or to our belief
that if someone's market-clearing wage is too low
to support life, he should not be allowed to
starve to death. As our societies have become
richer, we have come to believe that everyone is
entitled to a minimum standard, whether in work or
sickness or unemployment, which allows for a
continuing level of comfort and flourishing. The
market system does not guarantee this.
While the market today has no serious
challenger, it is morally vulnerable. It has
become dangerously dependent on economic success,
so that any large-scale economic failure will
expose the shallowness of its moral claims. The
solution is not to abolish markets, but to
remoralize wants. The simplest way of doing this
is to restrict advertising. This would prune the
role of greed and envy in the operation of
markets, and create room for the flourishing of
other motives.
Robert
Skidelsky is professor of political
economy at the University of Warwick, and author
of The World After Communism (1995) and a
prize-winning biography of the economist John
Maynard Keynes. He was elected a Fellow of the
British Academy in 1994. Skidelsky is a
nonexecutive director of Janus Capital Inc,
chairman of the Greater Europe Fund, and a
director of Transnational Insights Ltd.
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