Monday, September 23, 2013

Limits of markets - III

There has been an announcement of compensation to rape victims in West Bengal, a proposal to pay salary to housewives or the issue of gene patents. Does monetary payment  only compensate the relevant people? Or do they end up corrupting the good in question - a woman's dignity and right over her body, family relationships and a product of millions of years of evolution respectively? (There was an interesting comment in the  last link: "If they patent the gene, shouldn’t this make them legally responsible for the cancer?")

Or take the issue of water privatisation. It sounds sensible that since costs are involved in purifying and distributing water, people should be made to pay for it. It is argued that this will reduce wastage but does it? The answer is not so clear-cut. Apart from the inherent inequality involved in making available a resource that nobody can live without - have money, will get water - it also promotes a certain attitude.

The feeling of those who can afford it is -'I have paid for it so I can do what I want with it. So what if I waste it? It is my money.' Is this the attitude we want to promote for a scarce resource that everybody needs? I think wasteful use of water (especially drinking water) by anybody for any purpose, howsoever it is acquired, should carry a social stigma.

Or take the issue of Narendra Modi. There is the tendency to say that his performance on the economic front trumps everything else. It may never be proved whether he had a direct role in the Gujarat riots but that doesn't mean the riots should be forgotten. I have little sympathy with arguments like 'it has been a long time', 'Gujarat has made great economic strides', 'all sections have progressed', 'it is time to move on'...

One of the aims of punishment is that it should act as a deterrent to anybody contemplating such acts in the future. That is why you still see doddering old Nazis being dragged dragged to court even though they can't harm a fly now. The message that is sought to be sent is that if you indulge in certain kinds of activities, you will never be allowed to live in peace no matter how long it takes, no matter where you live, no matter what you do. It is hoped that this will prevent such crimes in future. The same argument applies regarding the anti-Sikh riots of 1984. The cases have to be pursued no matter how long it takes. I don't know the legal position here but I don't think  the statute of limitations applies in these cases.

I heard the head honcho of some corporate say that one of his achievements was a reduction in the workforce by 30%. It is undeniable that some companies have a bloated workforce and they need to shed some flab in order to remain competitive. If it had been described as a 'painful necessity', it would have been OK but 'an achievement'? How can inflicting pain on a large number of people be called 'an acievement'?

You can say that it is just a question of semantics but this reflects a mindset that is increasingly prevalent. Excess of market thinking leads people to view employees as nothing more than statistics to be manipulated in order to beautify the balance sheet. Such a mindset seems to to be apparent  in the case of  "janitors' insurance". It converts a safety net for families of employees  into an instrument of corporate finance. (I saw an interesting video called The Wisdom of Psychopaths.)

When market norms govern all aspects of life, it leads to the kind of response apparently given by Mukesh Ambani. (I will not elaborate on the lady's question which is another symptom of a market society.) Do people really think like this in making decisions about interpersonal relationships? It is all right for making mathematical models of human relationships in the same sense as moths 'assuming' parallel light rays the difference being that humans can do the assuming while moths presumably cannot. When such market calculations enter into human relationships, it corrupts their meaning.If market variables are used to analyse a personal relationship, you shouldn't expect anything more than a business partnership. I saw a strange statement by Larry Summers quoted in What Money Can't Buy:

"We all have only so much altruism in us. Economists like me think of altruism as a valuable and rare good that needs conserrving. 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 in this world that markets cannot solve."

Altruism is a 'rare good'? I have been surviving on altruism for over 14 years and have never felt that it was so rare. In this context, listen to a podcast on Radiolab called The Good show.

PS: A BBC Radio 4 podcast series, The Public Philosopher

Thursday, September 12, 2013

Limits of markets - II

One problem in moving more and more and more from a market economy to a market society where everything has a price is about inequality - it leads to what can be called economic apartheid. Market prices reflect both the ability and willingness to pay. When everything is up for sale, the ability to pay (or lack of it) matters. As Edward Sandford Martin  said, 'You cannot make your opportunities concur with the opportunities of people whose incomes are ten times greater than yours.' A certain level of inequality is inevitable but if it goes on exacerbating then at some level, there are bound to be problems.

The rich and successful tend to to think that everything is due to hard work and luck has played no part in their success  but Sam Harris and Michael Lewis point out that this is not so as does Michael Sandel in one of his Harvard lectures. All that hard work comes after huge dollops of luck determine that you find yourself at the right place at the right time. Rahul Gandhi says that "poverty is a state of mind". Seriously?! Prof. Sandel writes in his book:
If the only advantage of affluence were the ability to afford yachts, sports cars, and fancy vacations, inequalities of income and wealth would not matter very much. But as money comes to buy more and more - political influence, good medical  care, a home in a safe neighbourhood rather than a crime-ridden one, access to elite schools rather than failing ones - the distribution of income and wealth looms larger and larger. Where all the good things are bought and sold, having money makes all the difference in the world. 
Another reason why we should think more before moving towards commodification of everything is because markets promote certain vales and attitudes towards what is being priced. In standard economic theory, a transaction is fine if it results in some people being better off and no-one else is worse off. It assumes that putting a price on a good doesn't change the character of the good. Is this true in all situations? Sometimes market values crowd out non market values worth caring about.An example is the difference between fees and fines. Prof. Sandel writes:
A study of some child-care centres in Israel shows how this can happen. The centers faced a familiar problem: parents sometimes came late to pick up their children.A teacher had to stay with the children until the tardy parents arrived. To solve this problem, the centres imposed a fine for late pickups. What do you suppose happened? Late pickups actually increased.
Now if you assume that people respond to incentives, this is a puzzling result. You would expect the fine to reduce, not increase, the incidence of late pickups. So what happened? Introducing the fine changed the norms. Before, parents who came late felt guilty; they were imposing an inconvenience on the teachers. Now parents considered a late pickup as a service for which they were willing to pay. They treated the fine as if it were a fee. Rather than imposing on the teacher, they were simply paying him or her to work longer.
The price effect - when the price goes up, people buy less of a good ,and when prices go down, they buy more - is generally reliable when material goods like PCs or mobile phones are being discussed. But  it is less reliable when applied to social practices governed by non market norms. In the above case, when the price of arriving late increased, late pickups increased. The social norm of a moral obligation was now viewed through a market lens as overtime fees.

Even in  the case of some material goods that have significant social norms associated with them, the price effect doesn't seem to work. Consider the demand for gold in India.  The price of gold keeps going up and the demand keeps rising.

Market and moral values are not always additive. There are situations where social norms apply where introducing monetary incentives to encourage some behavior gets you less of it not more. We should ask if it is always necessary to maximize social  utility  regardless of the moral worth of the preferences. Economists say that they don't 'traffic in morality' but their belief in maximising utility is itself a value judgement. I abhor the Gordon  Geccko philosophy that 'greed is good'.

What is the importance of norms and attitudes that market values may crowd out? Are they worth preserving? If so,  should we avoid incentivising with money certain activities even though they may do some good?The answer varies with each case and depends on the attitude and values likely to be lost. Human nature is too complex to be reduced to a simple formula that can be applied everywhere.

PS: A conversation between Michael Sandel and A.C. Grayling: Part 1, Part 2, Part 3