Tuesday, November 18, 2008

Does the free market corrode moral character?

The Templeton Foundation recently asked 13 leading scholars and public figures to provide their answers to this question (here).

It seems to me that the main points in the answers can be summarised (very briefly) as follows:
· Free markets are inherently good because they reflect personal choices.
· Other systems, e.g. provision of goods via political processes, tend to result in worse moral outcomes because they lack competitive disciplines and are more prone to corruption.
· The outcomes of market processes reflect (and perhaps amplify) the values that people hold. Moral decadence is not the only possible outcome.
· Participation in mutually beneficial exchange encourages trustworthy behaviour and increased trust. Markets tend to reward diligence, good judgement and prudence.
· Market incentives and competitive pressures sometimes encourage people to act imprudently and to break moral codes.
· Markets tend to undermine some traditional values.
· Markets widen our circle of empathy. As a result of globalisation people in different parts the world come to view each other as business partners and friends.

Some of these points are more valid than others, but all seem familiar. In a contribution on his blog, however, Will Wilkinson sketched out what seems to me to be a new way of thinking about some of these issues (here). My interpretation of his argument is that shifts in the moral norms that are required as the means to achieve moral ends (longevity, health, wealth, happiness etc) are inevitable as the market system finds ways to achieve these ends more effectively. The process is analogous to technological innovation, except what is involved is a shift in the socio-economic structure that is the means of achieving moral ends, rather than a change in technology. Market processes corrode traditional moral norms, but this is an integral part of moral progress.

Loyalty could be an example of a traditional norm that has become less valued in many contexts. There was a time when tribal loyalty was of the utmost importance to the survival of kith and kin, but this has become irrelevant in modern societies. With increased mobility, loyalty to particular communities and employers is probably not as important as it once was. Greater value may be placed on such characteristics as emotional intelligence or ability to adapt to different social and work environments.

However, it seems to me that the corrosion of traditional moral norms by markets cannot always be viewed as benign. For example, I doubt whether anyone ever benefits from allowing modes of thought and action characteristic of the market (e.g. strict reciprocity) to contaminate their most intimate relationships. As Jerry Muller has shown, concerns that market norms might permeate all human behaviour have been a common cause of concern about free markets over the last few centuries (previously discussed here).

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In any case, why should every real or imagined tendency toward undesirable corrosion of moral character be attributed to free markets? The obvious point that many people do not seem to recognise is that we do not have free markets. With regard to the current financial crisis, can the imprudent behaviour of major lending institutions be attributed to free markets when there has been a long history of bailouts of financial firms whose failure could possibly have threatened confidence in the financial system? Can the short-termism associated with senior executive remuneration packages be attributed to free markets without considering the effects of tax considerations on the way these packages have been structured?

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