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A Forum on the Corrupting Effects of Markets
May 1, 2012
With Responses From
May 1, 2012
21 Min read time
Not only are there some things money can’t buy, but there are also many things money shouldn’t buy.
We live in a time when almost anything can be bought and sold. Markets have come to govern our lives as never before. But are there some things that money should not be able to buy? Most people would say yes.
Consider friendship. Suppose you want more friends than you have. Would you try to buy some? Not likely. A moment’s reflection would lead you to realize that it wouldn’t work. A hired friend is not the same as a real one. You could hire people to do some of the things that friends typically do—picking up your mail when you’re out of town, looking after your children in a pinch, or, in the case of a therapist, listening to your woes and offering sympathetic advice. Until recently, you could even bolster your online popularity by hiring some good-looking “friends” for your Facebook page—for $0.99 per friend per month. (The phony-friend Web site was shut down after it emerged that the photos being used, mostly of models, were unauthorized.) Although all of these services can be bought, you can’t actually buy a friend. Somehow, the money that buys the friendship dissolves it, or turns it into something else.
This fairly obvious example offers a clue to the more challenging question that concerns us: Are there some things that money can buy but shouldn’t? Consider a good that can be bought but whose buying and selling is morally controversial—a human kidney, for example. Some people defend markets in organs for transplantation; others find such markets morally objectionable. If it’s wrong to buy a kidney, the problem is not that the money dissolves the good. The kidney will work (assuming a good match) regardless of the monetary payment. So to determine whether kidneys should or shouldn’t be up for sale, we have to engage in a moral inquiry. We have to examine the arguments for and against organ sales and determine which are more persuasive.
So it seems, at first glance, that there is a sharp distinction between two kinds of goods: the things (like friends) that money can’t buy, and the things (like kidneys) that money can buy but arguably shouldn’t. But this distinction is less clear than it first appears. If we look more closely, we can glimpse a connection between the obvious cases, in which the monetary exchange spoils the good being bought, and the controversial cases, in which the good survives the selling but is arguably degraded, or corrupted, or diminished as a result. Once we see that connection, we have to ask where markets belong, and where they don’t. And the question of where markets belong is really about how we want to live together. We can’t answer it without thinking about the meaning and purpose of goods and the values that should govern them.
Let’s explore some cases intermediate between friendship and kidneys, which will help to elucidate the sorts of values people generally hold about buying and selling. If you can’t buy friendship, what about tokens of friendship or expressions of intimacy or affection?
Consider a social practice closely connected to friendship—a wedding toast to the bride and groom. Traditionally, such toasts are warm, funny, heartfelt expressions of good wishes delivered by the best man, usually the groom’s closest friend. But it’s not easy to compose an elegant wedding speech, so some best men have resorted to buying wedding toasts online.
ThePerfectToast.com is one of the leading Web sites offering ghostwritten wedding speeches. You answer a questionnaire, pay $149, and within three business days receive a professionally written custom toast. Other Web sites, such as InstantWeddingToasts.com, sell standard pre-written wedding speeches for $19.95, including a money-back guarantee.
Suppose, on your wedding day, your best man delivers a heartwarming toast, a speech so moving it brings tears to your eyes. You later learn that he bought it online. Would you care? Would the toast mean less than it did at first, before you knew it was written by a paid professional? For most of us, it probably would.
Although a bought toast might “work” in the sense of achieving its desired effect, that effect might depend on an element of deception. That’s a reason to suspect it’s a corrupt version of the real thing. So a wedding toast is a good that can, in a sense, be bought. But buying and selling it changes its character and diminishes its value.
How about gift giving, another expression of friendship? Unlike wedding speeches, gifts have an unavoidably material aspect. But with some gifts, the monetary aspect is relatively obscure; with others, it is explicit. Recent decades have brought a trend toward the monetization of gifts, another example of the increasing commodification of social life.
From the standpoint of market reasoning, it is almost always better to give cash rather than a gift. If you assume that people generally know their own preferences best, and that the point of giving a gift is to make your friend or loved one happy, then it’s hard to beat a monetary payment. Even if you have exquisite taste, your friend may not like the tie or necklace you pick out. So if you really want to maximize the welfare your gift provides, don’t buy a present; simply give the money you would have spent. Your friend or lover can either spend the cash on the item you would have bought, or, more likely, on something that brings even greater pleasure.
Joel Waldfogel, an economist, has drawn attention to the epidemic of squandered utility associated with holiday gift giving. In Scroogenomics: Why You Shouldn’t Buy Presents for the Holidays (2009), he writes:
The bottom line is that when other people do our shopping, for clothes or music or whatever, it’s pretty unlikely that they’ll choose as well as we would have chosen for ourselves. . . . Relative to how much satisfaction their expenditures could have given us, their choices destroy value.
Applying standard market reasoning, Waldfogel concludes that it would be better, in most cases, to give cash and that there is a 20 percent “value destruction” brought about, nationwide, by holiday gift giving.
If gift giving is a massively wasteful and inefficient activity, why do we persist in it? It isn’t easy to answer this question on the basis of typical economic assumptions. In his widely used economics textbook, Gregory Mankiw tries gamely to do so. He begins by observing that “gift giving is a strange custom” but concedes that it’s generally a bad idea to give your boyfriend or girlfriend cash instead of a birthday present.
But why? Mankiw’s explanation is that gift giving is a mode of “signaling,” an economist’s term for using markets to overcome “information asymmetries.” So, for example, a firm with a good product buys expensive advertising not only to persuade customers directly but also to “signal” to them that it is confident enough in the quality of its product to undertake a costly advertising campaign. In a similar way, Mankiw suggests, gift giving serves a signaling function. A man contemplating a gift for his girlfriend “has private information that the girlfriend would like to know: does he really love her? Choosing a good gift for her is a signal of his love.” Since it takes time and effort to look for a gift, choosing an apt one is a way for him “to convey the private information of his love for her.”
The question of where markets belong is really about how we want to live together.
This is a strangely wooden way to think about lovers and gifts. “Signaling” love is not the same as expressing it. To speak of signaling wrongly assumes that love is a piece of private information that one party reports to the other. If this were the case, then cash would work as well—the higher the payment, the stronger the signal, and the greater (presumably) the love. But love is not only, or mainly, a matter of private information. It is a way of being with and responding to another person. Giving, especially attentive giving, can be an expression of it. On the expressive account, a good gift not only aims to please, in the sense of satisfying the consumer preferences of the recipient. It also engages and connects with the recipient in a way that reflects a certain intimacy.
The reason gift giving is not always an irrational departure from efficient utility maximizing is that gifts aren’t only about utility. Some gifts are expressive of relationships that engage, challenge, and reinterpret our identities. This is because friendship is about more than being useful to one another. It is also about growing in character and self-knowledge in the company of others. To monetize all forms of giving among friends can corrupt friendship by suffusing it with utilitarian norms.
Even economists who view gift giving in utilitarian terms can’t help noticing that cash gifts are the exception, not the rule, especially among peers, spouses, and significant others. For Waldfogel, this is a source of the inefficiency he decries. So what, in his view, motivates people to persist in a habit that produces a massive destruction of value? It’s simply that cash is considered a “tacky gift” that carries a stigma. He does not ask whether people are right or wrong to regard cash gifts as tacky. Instead he treats the stigma as a brute sociological fact of no normative significance apart from its unfortunate tendency to reduce utility.
From the standpoint of economic reasoning, gift cards—a $90 billion industry and the most popular holiday gift request today—are a step in the right direction, though going all the way to cash would be even better.
Although money can’t buy friendship, it can buy tokens and expressions of friendship—up to a point. As we’ve seen, converting wedding toasts and gifts into commodities doesn’t destroy them altogether. But it does diminish them. The reason it diminishes them is related to the reason that money can’t buy friends: friendship and the social practices that sustain it are constituted by certain norms, attitudes, and virtues. Commodifying these practices displaces these norms—sympathy, generosity, thoughtfulness, attentiveness—and replaces them with market values. In this sense, markets corrupt expressions of friendship.
Honorific goods are vulnerable to corruption in a similar way. A Nobel Prize can’t be bought. Even if one were auctioned off each year, the bought award would not be the same as the real thing. The market exchange would dissolve the good that gives the prize its value.
But what about other forms of honor and recognition? Consider the buying and selling of admission to elite universities. Universities don’t hold auctions for admission, at least not explicitly. Suppose, however, that most of the places were allocated according to merit, but a few were quietly made available for sale. And let’s also suppose that many factors entered into admissions decisions—grades; SAT scores; extracurricular activities; racial, ethnic, and geographical diversity; athletic prowess; legacy status (being the child of an alumnus)—so that it was hard to tell, in any given case, which factors were decisive. Under conditions such as these, universities could sell some places to wealthy donors without undermining the honor that people associate with admission to a top school.
Critics of higher education claim that this scenario comes close to describing what actually goes on at many colleges and universities today. These critics describe legacy preference as a form of affirmative action for the affluent. And they point to cases in which universities have relaxed their admissions standards for less than outstanding applicants whose parents, though not alumni, are wealthy and likely to make a substantial contribution to the school. Defenders of these practices argue that private universities depend heavily on financial contributions from alumni and wealthy donors, and that such contributions enable universities to provide scholarships and financial aid to less affluent students.
A Nobel Prize can’t be bought. The market exchange would dissolve the good that gives the prize its value.
So, unlike the Nobel Prize, college admission is a good that can be bought and sold, provided the buying and selling take place discreetly. The idea of selling admission is open to two objections. One is about fairness; the other is about corruption. The fairness objection says that admitting children of wealthy backgrounds in exchange for a handsome donation to the college fund is unfair to applicants who lacked the good judgment to be born to affluent parents. This objection views a college education as a source of opportunity and access and worries that giving an edge to children of the wealthy perpetuates social and economic inequality.
The corruption objection is about institutional integrity. This objection points out that higher education not only equips students for remunerative jobs, but that it also embodies certain ideals—the pursuit of truth, the promotion of scholarly and scientific excellence, the advancement of humane teaching and learning, the cultivation of civic virtue. Although all universities need money to pursue their ends, allowing fundraising needs to predominate runs the risk of distorting these ends and corrupting the norms that give universities their reason for being. That the corruption objection is about integrity—the fidelity of an institution to its constitutive ideals—is suggested by the familiar charge of “selling out.”
These two kinds of arguments reverberate through debates about what money should and should not buy. The fairness objection asks about the inequality that market choices may reflect; the corruption objection asks about the attitudes and norms that market relations may damage or dissolve.
It’s worth taking a moment to clarify these two arguments for the moral limits of markets. The fairness objection points to the injustice that can arise when people buy and sell things under conditions of inequality or dire economic necessity. According to this objection, market exchanges are not always as voluntary as market enthusiasts suggest. A peasant may agree to sell his kidney or cornea to feed his starving family, but his agreement may not really be voluntary. He may be unfairly coerced, in effect, by the necessities of his situation.
The corruption objection is different. It points to the degrading effect of market valuation and exchange on certain goods and practices. According to this objection, certain moral and civic goods are diminished or corrupted if bought and sold. The argument cannot be met by establishing fair bargaining conditions. It applies under conditions of equality and inequality alike.
Each objection draws on a different moral ideal. The fairness argument draws on the ideal of consent or, more precisely, the ideal of consent carried out under fair background conditions. Market choices are not free choices if some people are desperately poor or lack the ability to bargain on fair terms. So in order to know whether a market choice is a free choice, we have to ask what inequalities in the background conditions of society undermine meaningful consent.
The fairness argument is important, but my focus is on the corruption argument, which appeals not to consent but to the moral importance of the goods at stake, the ones said to be degraded by market valuation and exchange. So to decide whether college admission should be bought and sold, we have to debate the moral and civic goods that colleges should pursue and ask whether selling admission would damage those goods. To decide whether to establish a market in babies up for adoption, we need to ask what norms should govern the parent-child relationship and whether buying and selling children would undermine those norms.
The core insight of the corruption argument is that markets are not mere mechanisms; they embody certain values. And sometimes market values crowd out non-market norms worth caring about.
How exactly does this crowding out take place? How do market values corrupt, dissolve, or displace non-market norms? Standard economic reasoning assumes that commodifying a good—putting it up for sale—does not alter its character. Market exchanges increase economic efficiency without changing the goods themselves. That is why economists are generally sympathetic to using financial incentives to elicit desirable behavior, such as paying students to get good grades. Market exchanges make both parties better off without making anyone else worse off.
But this assumption is open to doubt. As markets reach into spheres of life traditionally governed by non-market norms, the notion that markets don’t touch or taint the goods they exchange becomes increasingly implausible. A growing body of research confirms what common sense suggests: financial incentives and other market mechanisms can backfire by crowding out non-market norms. Sometimes offering payment for a certain behavior gets you less of it, not more.
Consider efforts to persuade a community to accept a nuclear waste site. For years, Switzerland had been trying to find a place to store its radioactive waste. Although the country relied heavily on nuclear energy, few communities wanted nuclear waste to reside in their midst. One location designated as a potential site was the small mountain village of Wolfenschiessen (population 2,100). In 1993, shortly before a referendum on the issue, economists surveyed the residents of the village, asking whether they would vote to accept a nuclear waste repository in their community if the Swiss parliament decided to build it there. Although the facility was widely viewed as an undesirable addition to the neighborhood, a slim majority (51 percent) of residents said they would accept it. Apparently their sense of civic duty outweighed their concern about the risks. Then the economists added a sweetener: suppose parliament proposed building the nuclear waste facility in your community and offered to compensate each resident with an annual monetary payment. Then would you favor it?
Offering payment for a certain behavior may get you less of it, not more.
The result: support dropped to 25 percent. What’s more, upping the ante didn’t help. When the economists increased the monetary offer, the result was unchanged. The residents stood firm even when offered yearly cash payments as high as $8,700 per person, well in excess of the median monthly income.
So what was going on in the Swiss village? Standard economic analysis suggests that offering people money to accept a burden would increase, not decrease their willingness to do so. But Bruno S. Frey and Felix Oberholzer-Gee, the economists who led the study, point out that the price effect is sometimes confounded by moral considerations. For many villagers, willingness to accept the nuclear waste site reflected public spirit—a recognition that the country as a whole depended on nuclear energy and that the waste had to be stored somewhere. If their community was found to be the safest storage site, they were willing to bear the burden. Against the background of this civic commitment, the offer of cash felt to residents like an effort to buy their votes. In fact 83 percent of those who rejected the monetary proposal explained their opposition by saying they could not be bribed.
The case of nuclear waste siting demonstrates the way introducing money into a non-market setting can change people’s attitudes and crowd out moral and civic commitments. Why worry about the tendency of markets to crowd out non-market norms? For two reasons: one economic, the other ethical.
From an economic point of view, social norms such as civic virtue and public-spiritedness are great bargains.
But moral and civic norms can also have intrinsic value. Relying solely on cash payments to induce residents to accept a nuclear waste facility is not only expensive; it is also corrupting. It bypasses persuasion and the kind of consent that arises from deliberating about the risks the facility poses and the larger community’s need for it.
Perhaps the best-known illustration of markets crowding out non-market norms is a classic study of blood donation by the British sociologist Richard Titmuss. In his 1970 book The Gift Relationship, Titmuss compared the system of blood collection used in the United Kingdom, where all blood for transfusion is given by unpaid volunteer donors, and the system in the United States, where some blood is donated and some bought by commercial blood banks, typically from the poor. Titmuss argued in favor of the U.K. system and against treating human blood as a commodity to be bought and sold on the market.
Titmuss presented a wealth of data showing that, in economic and practical terms alone, the British blood collection system works better than the American one. Despite the supposed efficiency of markets, he argued, the American system leads to chronic shortages, wasted blood, higher costs, and a greater risk of contamination.
The “commercialization of blood and donor relationships represses the expression of altruism,” he concluded, and “erodes the sense of community.”
Responding to Titmuss’s book, Kenneth Arrow, one of the most distinguished American economists of his time, invoked two key tenets of the market faith—two assumptions about human nature and moral life that economists often assert but rarely defend. The first is that commercializing an activity doesn’t change it.
The second is that ethical behavior is a commodity that needs to be economized. The idea is that we should not rely too heavily on altruism, generosity, solidarity, or civic duty, because these moral sentiments are scarce resources that are depleted with use. Markets, which rely on self-interest, spare us from using up the limited supply of virtue. So, for example, if we rely on the generosity of the public for the supply of blood, there will be less generosity left over for other social or charitable purposes. If, however, we use the price system to generate the blood supply, people’s altruistic impulses will be available, undiminished, when we really need them. “Like many economists,” Arrow wrote:
I do not want to rely too heavily on substituting ethics for self-interest. I think it best on the whole that the requirement of ethical behavior be confined to those circumstances where the price system breaks down. . . . We do not wish to use up recklessly the scarce resources of altruistic motivation.
It is easy to see how this economistic conception of virtue, if true, provides yet further grounds for extending markets into every sphere of life, including those traditionally governed by non-market values. If the supply of altruism, generosity, and civic virtue is fixed, like the supply of fossil fuels, then we should try to conserve it. The more we use, the less we have. On this assumption, relying more on markets and less on morals is a way of preserving a scarce resource.
But to those not steeped in economics, this way of thinking about the generous virtues is strange, even far-fetched. It ignores the possibility that our capacity for love and benevolence is not depleted with use but enlarged with practice. Think of a loving couple. If, over a lifetime, they asked little of one another, in hopes of hoarding their love, how well would they fare? Wouldn’t their love deepen rather than diminish the more they called upon it? Would they do better to treat one another in more calculating fashion, to conserve their love for the times they really needed it?
Similar questions can be asked about social solidarity and civic virtue. Should we try to conserve civic virtue by telling citizens to go shopping until their country needs to call upon them to sacrifice for the common good? Or do civic virtue and public spirit atrophy with disuse? Many moralists have taken the second view. Aristotle taught that virtue is something we cultivate with practice: “We become just by doing just acts, temperate by doing temperate acts, brave by doing brave acts.”
Treating virtue as a commodity ignores the possibility that our capacity for love and benevolence is enlarged with practice.
In 2003 the economist Lawrence Summers, then the president of Harvard University, was invited to offer the morning prayer in Harvard’s Memorial Church. He chose as his theme what “economics can contribute to thinking about moral questions.” Economics, he stated, “is too rarely appreciated for its moral as well as practical significance.”
Summers observed that economists place “great emphasis on respect for individuals—and the needs, tastes, choices, and judgment they make for themselves.” He then offered a standard utilitarian account of the common good as the sum of people’s subjective preferences: “It is the basis of much economic analysis that the good is an aggregation of many individuals’ assessments of their own well-being, and not something that can be assessed” apart from these preferences, on the basis of an independent moral theory.
He illustrated this approach by challenging students who had advocated a boycott of goods produced by sweatshop labor: “There is surely some moral force to the concern that as long as the workers are voluntarily employed, they have chosen to work because they are working to their best alternative,” Summers argued.
He concluded with a reply to those who criticize markets for relying on selfishness and greed:
We all have only so much altruism in us. Economists like me think of altruism as a valuable and rare good that needs conserving. Far better to conserve it by designing a system in which people’s wants will be satisfied by individuals being selfish, and saving that altruism for our families, our friends, and the many social problems in this world that markets cannot solve.
Notice that Summers’s version of virtue as a commodity is even starker than Arrow’s. Reckless expenditures of altruism in social and economic life not only deplete the supply available for other public purposes; they even reduce the amount we have left for our families and friends.
This economistic view of virtue fuels the faith in markets and propels their reach into places they don’t belong. But the metaphor is misleading. Altruism, generosity, solidarity, and civic spirit are not like commodities that are depleted with use. They are more like muscles that grow stronger with exercise. One of the defects of a market-driven society is that it lets these virtues languish. To renew our public life we need to exercise them more strenuously.
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