Michael Sandel on the Moral Limits of Markets

Recently I widened my weekly podcast subscription to Intelligence Squared. It describes itself as a forum for debate and intelligent discussion. What makes the organisation great is that they make their forums available as podcasts. I actually regret not having discovered them earlier, you really learn a lot by listening to the discussions on the go!

In May they re-broadcasted a special Intelligence Squared event from 2013 at which the American political philospoher Michael Sandel discussed his book What Money Can’t Buy: The Moral Limits of Markets. The event was a hybrid between a lecture and discussion and was actually even published by Intelligence Squared on Youtube.

So today I want to provide you with some of the highlights discussed to nudge you to watch the complete forum. The frame of the event was the question whether we want a society in which wealth conquers all aspects of life. In particular, Sandel argues that our market economy has transformed into a market society. While the former is an effective tool to organise productive activity, the latter is a society in which market values become a way of life. In a market society one can find market values in almost every domain of life. For example, Sandel points out that cash incentives are now increasingly used as policy instruments and highlights the case of “health bribes” which are cash incentives to nudge people into a healthy lifestyle. Is it ethical to pay people to lose weight?

Another area in which cash incentives are now increasingly used as policy instruments is education. He asks whether it is right to pay children to motivate them to study or to read. One of the objections put forward is that these cash incentives would undermine the children’s intrinsic motivation. One of the commentators for example suggests that you would put a contract on the gift of reading and incentivise passion. In her opinion this would not work because you essentially cannot put a price on passion and gifts. However, another commentators argues that we are often paid to learn a skill and that education belongs into this category. He argues that the interchange between teacher and student has to offer the student some recognition and one method to allow for this recognition is a cash incentive.

In the last part of the debate Sandel talks about whether money incentives are counterproductive. From the point of view of standard economic models and the well-known concept of homo economicus, it must be that offering people money to do something will increase their willingness to do this. However, in practice putting a price on something reduced people’s willingness to undertake it. Sandel puts forward empirical evidence from Switzerland which had to decide where to locate a nuclear waste site. After narrowing down the choice to a potential town they surveyed its residents and asked the following question:

“If the parliament chooses your town will you accept the nuclear waste site?” 

Thereafter they asked a follow-up question which seemed to make the deal more attractive:

“Suppose the parliament chooses your town and votes to allocate a financial compensation to each resident of the town yearly of up to $8,000, then would you approve?” 

If people were to behave like homo economicus, then the approval rate of the nuclear waste site would have increased because the monetary incentive would have increased the residents’ willingness to tolerate a nuclear waste site in their town. However, this was not what actually happened. The willingness to accept the nuclear waste site fell substantially in the follow-up question. Sandel points out that the residents did not want to be bribed. In the first question approval was motivated by a sense of public responsibility but when offered the $8,000 financial compensation the civic duty diminished into a financial transaction which people were not willing to approve of. Sandel argues that this monetary incentive crowded out the sense of public responsibility and corrupted civic duty.

A similar result was found in Israeli daycare centres. When introducing a fine for picking up children late the rate of late arrivals went up and not down. This was because the introduction of a cash incentive crowded out parents’ sense of feeling guilty. It transformed the issue into a financial transaction and parents did not have to feel guilty anymore but paid an appropriate amount for the “baby sitters”. But what is more, when reversing the fine due to its adverse impact the increased rate of late arrivals to pick up the children did not reduce back to the initial level. Once the parents’ sense of obligation to pick up their children on time was eroded, it could not be re-established that quickly.

Sandel final take-away from the discussion is important for the Economics profession. He points out that in order to make the decision where markets serve the public good and where they don’t, we have to go beyond economic efficiency and establishing incentives in order to nudge people into good behaviour (what is ‘good by the way?). Economists – like everybody else – have to ask about…

… whether introducing money into a certain practice will dissolve or displace or crowd out goods, attitudes, norms, values worth caring about (Sandel, 2013).

Sandel points out that we have been missing out on the debate where markets belong. Markets and market mechanisms like cash incentives have been established in many aspects of life without discussing the implications of transforming into a market society. A new moral public discourse is needed to create this debate: Where do markets belong and where do they not belong? Where do we benefit from introducing market mechanisms? In which areas will society be better off with the use of cash incentives?

Thanks for reading and I hope that you will enjoy the videos!

Jasmin


Sandel, M. (2013). Michael Sandel on the Moral Limits of Markets [Youtube video]. Retrieved from https://www.youtube.com/playlist?list=PL60B42C0FC74EF0CE 

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