Do incentives make us as scheming and self-interested as Machiavelli's Prince? / Photograph: Rafael Robles

The Moral Economy: Why Good Incentives Are No Substitute for Good Citizens
Samuel Bowles
Yale University Press, $27.50 (cloth)

From sin taxes to the Affordable Care Act’s individual mandate, from tax rebates for buying an electric car to performance-based school funding, governments extensively deploy material incentives to regulate citizens’ behaviors. The idea is straightforward: economic costs and benefits shape people’s choices, so changing those costs and benefits can change their actions.

This approach is intuitively appealing in our age, as it uses an enlightened mix of encouragement and coercion to advance public goals. But it works only if people act rationally in their own self-interest and respond accordingly to alterations in cost-benefit calculations. This may not seem much of an “if”; the notion that we all maximize our own good has been the basis of a long strain of economic thinking stretching back at least to Adam Smith, who asserted, “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.” But is this really an accurate depiction of our behavior? And what is the significance of individual or collective political agency in a world of government-by-incentives?

Samuel Bowles’s new book The Moral Economy: Why Good Incentives Are No Substitute for Good Citizens provides a lucid and comprehensive answer to the first of these questions. Synthesizing findings from experimental and behavioral economics, psychology, and anthropology over the last two decades, Bowles convincingly argues that people do not act on the basis of amoral self-interest alone. Rather, we regularly proceed from “ethical and other-regarding motivations.” Furthermore, these “social preferences,” as Bowles call them, can be crowded out and eventually eroded by policies that rely exclusively on manipulating material self-interest. He then moves these lessons from social science research into the realm of both policymaking and political theory, contending that the proper role of government is to construct a “policy paradigm of synergy between incentives and constraints, on the one hand, and ethical and other-regarding motivations, on the other.”

Bowles doesn’t explore the second question, which is about political agency. This is a striking omission because he emphasizes the need for public policy and governance to cultivate good citizens. Yet there is no place in his recommendations for the active citizen practicing democracy through political participation, protest, and social movements. The book is haunted by the absence of active responses to government-instituted incentives and policies.

Surprisingly, most people consider the welfare of others when making decisions—but incentives can manipulate us into being more selfish.

This obscuring of political agency is ironic given Bowles’s praise for “Aristotle’s Legislator”—a shorthand for the enlightened policymaker who works to instill civic-mindedness in the citizenry rather than ground government exclusively in the assumption of amoral self-interest. Bowles cites the Nicomachean Ethics, where Aristotle writes that what “distinguishes a good political system from a bad one” is “the legislator [who] makes the citizens good by habituating them.” But Aristotle’s Citizen is not merely the inert target of the Legislator’s policy. In Aristotle’s Politics, the Citizen is one who “is entitled to share in deliberative or judicial office.” He—for Aristotle, the citizen was explicitly a non-enslaved man—“must possess the knowledge and capacity for ruling as well as for being ruled.” A lawmaker may devise incentives wisely and account adeptly for the people’s social preferences, but if citizens do not participate in deliberation, in ruling and being ruled, that lawmaker is not so much Aristotle’s Legislator as Plato’s philosopher king.

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Bowles’s case against governing by economic incentive and the assumption of amoral self-interest makes a great deal of sense. In making it, he criticizes modes of economistic thinking dominant in contemporary politics and public policy—we might call these, collectively, neoliberalism—and does so on economics’ own terms.

Drawing primarily on experiments in which research subjects are paid with real money to play out situations from the game theory catalog, Bowles demonstrates that “in most populations, few individuals are consistently self-interested, and moral and other-regarding motives are common.” Researchers compare the actions of subjects to those, in theory, that a purely self-interested actor would make. It turns out that in the prisoner’s dilemma game, people routinely do not act out of self-interest, instead choosing actions such as reciprocating their counterpart’s decision even when they could achieve higher payoffs by acting selfishly. In a public goods game carried out by economists Bernd Irlenbusch and Gabriele Ruchala and cited by Bowles, research subjects contributed 48 percent more to a public pool than they would have had they been interested only in maximizing their material interest.

These departures from the “standard economic model”—including “altruism, reciprocity, intrinsic pleasure in helping others, aversion to inequity, ethical commitments,” and more—are what Bowles collectively calls “social preferences.” He concludes that people regularly evince a significant level of social preferences rather than just maximizing their own material interest.

Bowles draws a number of implications. For one thing, he challenges the standard neoclassical assumption that “incentives and morals are additively separable,” meaning that a variation in one is independent of the other. This is essential to the incentive-based approach to governance, which assumes that the use of incentives does not alter in any way a person’s moral sentiments and, therefore, that policymakers need not worry that their self interest-based inducements will undermine ethical behavior.

In fact, Bowles sets out to show how the deployment of incentives based in self-interest can “crowd out” social preferences. There are two main causal mechanisms. First, preferences are often “situation-dependent,” and incentives “provide cues to the nature of the situation in which a person finds herself and hence may act as a guide to appropriate behavior, resulting in her applying a different set of preferences.” The salience of self-interested preferences increases and that of social preferences decreases thanks to the cue given by material incentives. Second, “incentives may alter the process by which people come to acquire preferences over their lifetime” as a result of social learning. Thus, “the extensive use of incentives may adversely affect the evolution of civic preferences in the long run.”

In one example, Bowles analyzes the results of a common pool resource game conducted by the economist Juan Camilo Cardenas and his colleagues in rural Colombian villages. Research subjects made anonymous individual decisions about how much they would extract from a hypothetical forest shared with each other. They received monetary payoffs based on the outcome of the experiment. In the experimental set-up, individuals would earn the most for themselves by over-exploiting the forest, but the group as a whole would do best if each participant limited their extraction. This process was carried out several times under varying conditions.

In the initial stage, the participants, on average, “extracted 44 percent less of the experimental ‘resource’ than the amount that would have maximized their individual payoffs.” Bowles takes this as evidence of a social preference to benefit the group at the expense of self-maximization. In a later stage, the researchers introduced a “fine” for over-extraction. By the end of this stage, subjects were extracting almost exactly as much as a purely self-interested actor would. If incentives were separable from morals, as in standard economic assumptions, the fine would not have altered the baseline moral motivation toward social preferences. As Bowles sees it, “The fine worked as a substitute for the villagers’ preexisting social preference rather an additional reason to protect the ‘forest’ . . . the villagers took the fine to be the price of transgressing what had previously been a social norm.” That is, rather than being separable, material incentives—or, more precisely, the message they conveyed—dampened or replaced social preferences.  

That people make decisions on the basis of social preferences that are susceptible to being crowded out has significant consequences. Trying to make markets work more efficiently through the use of incentives risks compromising “exactly those ethical and other-regarding motives that are essential to a well-governed society.” At the same time, “Policies that support the proliferation and expression of ethical and other-regarding motivations will sometimes reduce the effectiveness of explicit incentives in implementing efficient outcomes.” Other-regarding motivations therefore are “a fragile resource for the policy maker,” who will sometimes have good reasons to use incentives, despite the potential harm to social preferences. The Legislator faces a dilemma, unable in Bowles’s account either to further instantiate governance based on material self-interest or to focus all attention on cultivating social preferences.

To escape this dilemma, the wise Legislator discerns that “good policies and constitutions are those that support socially valued ends not only by harnessing self-interest but also by evoking, cultivating, and empowering public-spirited motives.” Thus Bowles’s mandate: “Encourage civic action by appealing to both material interests and moral sentiments, framed so that the two work synergistically.” In the book’s final chapter, he articulates some lessons for policymaking as well as challenges to implementing those lessons. For instance, he cites the former Bogotá mayor Antanas Mockus’s Civic Culture Program, in which the city government, facing drought, paired moral exhortations to save water with prizes for those who saved most and modest penalties for “water hogs.” Bowles ultimately argues that the Legislator must recognize that “good incentives are no substitute for good citizens.” Hence the Legislator’s bumper-sticker slogan: “good laws make good people.” 

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Good laws may make good people, but The Moral Economy makes this look like a one-way street. For a book about the cultivation of good citizens, there is little discussion of what citizens actually do. Do they passively respond to the policymaker’s mix of material incentives and preference solicitation? Do they participate in the election of legislators, the crafting of policy, and the forging of civic bonds? Can they dissent from or protest the work of the Legislator? How might such political action actively form the civic-mindedness and social preferences of the citizen? How might they shape themselves rather than just being shaped by the law? In Bowles’s account, citizens are ruled, but how do they rule in turn? What are the politics flowing from—or obstructed by—the wise Aristotelian Legislator?

Bowles’s selective engagement with political theory helps explain the near absence of actual politics in the book. Aristotle advocates not only that citizens rule and be ruled in turn but also that active political participation is necessary for human flourishing and the good life. In The Human Condition (1958), Hannah Arendt builds on Aristotle, arguing that the public space of citizens gathering to act together is “the political activity par excellence.” Jill Frank, in A Democracy of Distinctions (2005), finds in Aristotle justification for a kind of democratic and pluralistic order. Both of these readings place Aristotle’s emphasis on the participation of people in politics, not the management of the people by their governors.

Bowles sets up Niccolò Machiavelli as foil to the wise Legislator, but here, again, his reading omits much. In Bowles’s telling, Machiavelli was the turning point in the move from “Aristotle’s Legislator inculcating good habits in citizens” to a “system of economic governance and law” inducing “citizens to act as if they were good.” That is, before Machiavelli, legislators ruled by encouraging civic-mindedness, but afterward they presumed citizens’ avariciousness—at least, in Bowles’s telling of this history.

But this claim disregards Machiavelli’s frequent celebration of the dynamic republican polity of competing interests and perspectives; on this view, engagement in the political life of the community is the mark of citizenship. As Hanna Fenichel Pitkin puts it in Fortune is a Woman (1985), a study of gender and politics in Machiavelli’s thought, the Florentine’s republican politics rely on “a common good that emerges only out of the political interaction of the Citizens.” In this setting, “partial needs, interests, and passions brought into the political process are transformed, enlarged, brought into contact” with others “and ultimately redefined collectively.” Moreover, she argues, “republican authority . . . requires a mutuality between leaders and led” that “further politicizes the people rather than rendering them quiescent.” This reading conceives of the citizen as one who has his—for Machiavelli, citizenship and masculinity are closely linked—preferences and interests transformed not as a result of being governed but through active participation in politics.

Workers cooperatives offer an alternative, in which material incentives are merely a point of departure for democratic practice.

The closest Bowles comes to engaging political action is his claim, grounded in anthropological research and cross-cultural experimental economics, that “liberal civic culture” and its attendant institutions can promote trust, generosity, and cooperation. Following the sociologist Norbert Elias, Bowles believes that aspects of liberal societies function as a “civilizing process” supporting these characteristics. (Never mind the centuries of imperialism, colonialism, slavery, and resource expropriation propping up that civilizational project.) However, Bowles’s liberalism takes the form of an administrative state that manages citizen preferences and interests; in this sense, it could be considered anti-political.

Political theorist Bonnie Honig criticizes theories—including forms of liberalism—that “displace conflict” and “identify politics with administration.” In Political Theory and the Displacement of Politics (1993), she writes that this “yearn[ing] for closure” depends on an assumption “that it is possible and desirable to contain or expel the disruption of politics.” The effect is to “remove politics from the reach of democratic contest” and construct citizens primarily “as passive consumers of the state’s goods and services rather than as its active and vigilant interrogators.”

Honig insists that disagreement is the heart of politics, a mode of action that seems to be foreclosed if citizens are material to be shaped by the Legislator—even in a liberal civic culture, such as Bowles’s, which includes democracy, the rule of law, and social equality. For Honig, democracy involves “a set of arrangements that perpetually generates popular (both local and global) political action as well as generating the practices that legitimate representative institutions.” Politics should be understood “as a disruptive practice that resists the consolidations and closures of administrative and juridical settlement for the sake of the perpetuity of political contest.” She shifts the locus of politics to those who actively engage in challenging the status quo, who contest with the distribution of positions, resources, ideas, power, and identities in society. By contrast, in Bowles’s account, there is no political disagreement to be found, save perhaps among economists-turned-policy-prescribers.

• • •

This lack of engagement with the actual political work of citizenship is a significant missed opportunity. What if democratic agency, participation in social movements, protests, civic associations, and other forms of activism can themselves encourage civic-mindedness and other-regarding preferences? These possibilities are erased when policies, no matter how wise, are handed down by the Legislator.

Let us consider a concrete example: the workplace. Bowles notes that “people may respond adversely to the political nature of the incentives, which are often transparently an attempt to control the target,” invidious to its sense of autonomy. But “the imposition of controls by peers, especially if it is the result of a deliberative process legitimated by voting” does not produce the same effect. This phenomenon, grounded in experimental research on “control aversion,” poses a problem for the management of firms: “if most employers have low expectations of their workers, they will adopt compensation and supervision policies”—that is, incentive structures—that “will evoke minimal performance from their workers” due to the crowding out of social preferences. In Bowles’s framework, the logical response is for the Legislator to craft policies and regulations to encourage a synergy of self-interest and social preferences in the workplace. But what would a democratic political response look like?

Worker cooperatives offer one example—a political mode of making good citizens. According to the United States Federation of Worker Cooperatives, these businesses “are owned and controlled by their members, the people who work in them.” Their “worker-members invest in and own the business together, and it distributes surplus to them.” In this context, “Decision-making is democratic.” If, as Bowles contends, loss of decision-making control adversely affects one’s social preferences and the effort one puts into one’s labor, then worker cooperatives premised on democratic decision-making could be a viable route out of the interest-preference dilemma he details. Indeed, in research by Ragnhild Haugli Braaten, cited by Bowles, Peruvian farmers who lived in communities operating on a private land-ownership model contributed less to community resources in both real-life and experimental conditions than did those who lived in communities with joint ownership.

In an interview, Alexander Kolokotronis, lead organizer of the Student Organization for Democratic Alternatives, argued, “Ethical and social preferences are ingrained in the very structure of worker cooperatives.” He told me that “many worker cooperatives make community engagement a core part of their operations,” citing the example of Brooklyn-based Si Se Puede! and its requirement that worker-owners set aside time for community engagement each month.

Direct participation of worker-owners can cultivate civic-mindedness from the ground up. Management scholar John T. Luhman finds that the “experience of equal . . . rights and accountability” in worker-owned firms “will further [worker-owners’] sense of solidarity and drive for social change.” This is especially the case if members share a “collective political vision.” James J. Kennelly and Mehmet Odekon argue that worker-cooperatives, “community-centered, integrative, competitive, and self-sustaining,” not only enhance the solidarity and freedom of workers but also “have the potential to address societal, even global, issues of income and wealth inequality.”

Worker cooperatives are instructive in another way as well. Whereas Bowles sets up a synergy of self-interest and social preferences as an end of politics, cooperatives highlight an alternate route, one where the synergy of material incentives and social preferences is not an end but instead a point of departure for democratic practice. Christopher Michael, executive director of the New York City Network of Worker Cooperatives, told me, “The evidence seems clear that economic incentives are a prerequisite for systemic change of the economy in the direction of employee ownership.” This moves from a paradigm of incentives acting upon people to one of incentives spurring people to act politically.

Worker cooperatives are not the only mode of economic democracy that foregrounds civic action. Participatory budgeting, defined by the Participatory Budgeting Project as “a democratic process in which community members directly decide how to spend part of a public budget,” provides another example. Kolokotronis advocates for participatory budgeting because of its capacity to produce “policy outcomes that are favorable to education and health,” an “uptick in the number of independent civic and neighborhood associations,” and “changes in the political imaginary of the demos” as citizens transform the way they understand themselves and their relation to power. Research by political scientist Celina Su finds that New York City’s participatory budgeting process has “broadened some notions of stakeholdership, engaging traditionally disenfranchised constituents in the city.” She argues that its “spillover effects” of “prompting participants to demand more from the state” are most important.

Unfortunately there is little in Bowles’s book to indicate that such citizen- or worker-led modes of democratic action could be important, a notable omission given his earlier research on employee-owned firms. The Citizen who participates in politics lurks behind the Legislator, but the book ignores this more engaged counterpart.

• • •

Throughout The Moral Economy, Bowles critiques David Hume’s maxim about building a constitution for “knaves.” Whereas “Hume wanted to harness the ‘insatiable avarice’ of the citizen-knave in the interests of the public good,” Bowles contends, “a constitution for knaves may produce knaves, and may cause the good to act as if they were ‘wicked.’” The problem is that in the course of disputing the logic of government based on self-interest, he permits little room for political action by citizens; the space he leaves for it feels empty and lifeless. The risk is that, in place of the constitution for knaves, we may get politics for knaves.