Sandel on the moral limits of markets

Sandel writes that “The reach of markets, and market-oriented thinking, into aspects of life traditionally governed by nonmarket norms is one of the most significant developments of our time” (Sandel, Reference Sandel2012: 7). He believes this development should be cause for concern. His book, What Money Can't Buy: The Moral Limits of Markets, focuses on two objections to markets: the fairness objection and the corruption objection. He explains the fairness objection as follows:

The second objection, the corruption objection, is the heart of the book and the one I will focus on in this article. The corruption objection “points to the degrading effect of market valuation and exchange on certain goods and practices” (Sandel, Reference Sandel2012: 111). Sandel insists: “markets don't only allocate goods; they also express and promote certain attitudes towards the goods being exchanged” (Sandel, Reference Sandel2012: 9). In other words “when we decide that certain goods may be bought and sold, we decide, at least implicitly, that it is appropriate to treat them as commodities, as instruments of profit and use” (Sandel, Reference Sandel2012: 9).

A problem potentially arises because some types of goods are degraded when treated this way (Sandel, Reference Sandel2012: 10). Buying and selling children, for example, is morally abhorrent because putting a price on them is incompatible with valuing them appropriately (Sandel, Reference Sandel2012: 112). A market for selling kidneys may “promote a degrading, objectifying view of the human person, as a collection of spare parts” (Sandel, Reference Sandel2012: 110). In his investigation into what money cannot and shouldn't be permitted to buy, Sandel goes on to suggest that creating markets for sexual services, college admission, autographed sporting memorabilia, and the naming rights to civic venues are all potentially problematic. Rather than calling for an outright ban on the sale of these goods he calls for more debate on “the moral meaning of these goods and the proper way of valuing them” (Sandel, Reference Sandel2012: 10).

Sandel argues compellingly that extending markets into new spheres can erode nonmarket norms (Sandel, Reference Sandel2012: 90–1). He supports this argument by referring to:

Empirical research shows people are less willing to engage in various civic-minded activities – from donating blood, to collecting money for charity, to providing professional services to the needy, to accepting a toxic waste site in their town – when a monetary reward is offered (Frey et al., Reference Frey, Oberholzer-Gee and Eichenberger1996; Frey and Oberholzer-Gee, Reference Frey and Oberholzer-Gee1997; Frey and Jegen, Reference Frey and Jegen2001; Deci et al., Reference Deci, Koestner and Ryan1999; Kunreuther and Easterling, Reference Kunreuther and Easterling1996; Gneezy and Rustichini, Reference Gneezy and Rustichini2000a; Gneezy and Rustichini, Reference Gneezy and Rustichini2000b; Ariel, Reference Ariel2009). Many people are ordinarily willing to do these activities out of public spiritedness. But introducing financial incentives can lead to “the loss of nonmarket norms and expectations” and thereby “change the character” of these activities (Sandel, Reference Sandel2012: 90). These activities come to be seen in a different light, which makes people more reluctant to do them.

To speak of markets corrupting and degrading, demeaning or defiling “is to appeal, implicitly at least, to conceptions of the good life” (Sandel, Reference Sandel2012: 187). A more value-neutral way of putting Sandel's idea – one which avoids appealing to any particular conception of the good life – is that markets displace other norms and expectations. In discussing the allocation of various goods from kidneys to college places to rock concerts tickets, Sandel contrasts markets with alternative systems based on queueing, lotteries, merit and need. Markets often fare poorly in these comparisons. But there are other allocative mechanisms – such as patronage or theft – in comparison with which markets might look very appealing. Markets can crowd out bad norms as well as good ones. Sandel would surely agree. He writes, “There's no reason to assume that any single principle – queuing or paying – should determine the allocation of all goods” (Sandel, Reference Sandel2012: 40). He insists that each case must be discussed individually (Sandel, Reference Sandel2012: 40).

Sandel's ultimate conclusion is considered. He acknowledges that “a market economy is a tool – a valuable and effective tool – for organising productive activity” (Sandel, Reference Sandel2012: 10). He doesn't rush to condemn every extension of market norms. Rather he urges that, in each case, we pause to:

In each situation the harmful effects need to be weighed against the good that introducing markets might do.

Pearson on the moral limits of welfare

Let us now examine Pearson's argument about welfare. Pearson is concerned with the experiences of the discrete Aboriginal communities of Cape York Peninsula in Australia's sparsely populated north. These communities, which were formed from the missions and government reserves of an earlier era, are geographically remote from centres of economic production. There has been little employment available to the Aboriginal Australians who live in them since the collapse of Aboriginal employment in the pastoral industry in the 1970s (Pearson, Reference Pearson2000: 30). The very specific geographic and temporal context of Pearson's observations is crucial to appreciating his moral critique of welfare. Pearson attests, and outsiders who have worked in Cape York concur, that the incorporation of Aboriginal people into Australia's welfare system in the 1970s resulted in a “vast improvement in the material circumstances” of these communities, yet coincided with a breakdown in social order (Pearson, Reference Pearson2000: 15; Martin, Reference Martin2001; Sutton, Reference Sutton2009; Hunter, Reference Hunter, Craven, Dillon and Parbury2013: 148–9). Pearson controversially asserts there is a causal connection between long-term welfare dependency and the alarming rates of violence, child neglect and other indications of social breakdown in Cape York. Other authors, however, attribute the social problems of these communities to other factors including trauma, dispossession, distinctive Aboriginal cultural values and alcohol (Martin, Reference Martin2001; Sutton, Reference Sutton2009).

Though Pearson observes that in much of Australia the social security system has worked well, he argues that in Cape York it has not functioned as intended. Rather than being an ‘income-support safety net’ designed to help people through temporary periods of unemployment, welfare has become the mainstay of the economy of Cape York (Pearson, Reference Pearson2000: 11; Pearson, Reference Pearson2009a: 188). While the social security system might be intended to embody the logic of generalised reciprocity, offering support to citizens in times of need in exchange for their contributions at other times in the lifecourse, this is not how it is perceived on the ground in Cape York. Pearson contends that welfare payments lack any sense of reciprocity because Aboriginal people in Cape York are so isolated from labour markets that they do not expect to “repay via their taxes what they have received” through the welfare system (Pearson, Reference Pearson2000: 11). These payments are available indefinitely and have been, in practice though not in theory, unconditional.Footnote ¹ Australia's system of non-contributory, means-tested residual welfare allocates money on the basis of rights deriving from citizens’ deficits rather than their efforts or strengths. Welfare payments are highly stigmatizing and, although a citizenship entitlement, they are experienced by Aboriginal people as a depersonalised, bureaucratised form of charity. Pearson understands their underlying rationale as need alleviation. (He ignores other rationales important to the development of welfare systems such as labour market efficiency, egalitarian redistribution, the pooling of risk, solidarity, mitigation of class conflict and so on (Goodin et al., Reference Goodin, Headley, Muffels and Dirven1999: 21–36).)

The passive welfare economy – unlike the traditional subsistence economy of his ancestors destroyed by white settlers, the agricultural subsistence economy of the mission era, and the market economy today – does not demand that households contribute to their own material survival (Pearson, Reference Pearson2000: 5). The traditional economy, the mission-era economy, and the market economy provide a strong nexus between effort and reward, and necessitate a degree of discipline and personal responsibility (Pearson, Reference Pearson, Botsman and Latham2001: 139). Pearson claims that the availability of unconditional welfare discourages people both from seeking paid employment (Pearson, Reference Pearson2000: 22) and from engaging in traditional subsistence activities such as hunting (Pearson, Reference Pearson2009a: 328–9).

Like conservative advocates for welfare reform in the US and UK, who charge welfare with perversely entrenching the poverty it is intended to alleviate, Pearson believes that long-term receipt of welfare payments erodes the work ethic (Murray, Reference Murray1984; Mead, Reference Mead and Saunders2000; Field, 2001).Footnote ² He claims that reliance on passive welfare damages individuals by robbing them of initiative and making them helpless (Pearson, Reference Pearson, Botsman and Latham2001: 139; Reference Pearson2000: 5). Though Pearson's thinking shares much with Mead’s, he is not preoccupied with the possibility that welfare payments encourage people to turn down the low-paid jobs available to them. Pearson recognises that, at least in the short term, there are few jobs available to his people. The problem he identifies is more that welfare dulls his people‘s desire to invest in their productive skills and capacities, and induces them to remain in locations they might otherwise venture from in search of work. He asserts that, over time, receiving ‘money for nothing’ produces a distinctive ‘mentality’ whereby welfare recipients come to “see themselves as victimised or incapable and in need of assistance without reciprocation” (Pearson, Reference Pearson2000: 21). They come to believe that they are entitled to what they want without needing to produce anything of value to anyone else in return (Pearson, Reference Pearson2000: 22). “The passive welfare mentality results in . . . our people failing to take responsibility for ourselves as individuals, for our families and for our communities”, he writes (Pearson, Reference Pearson2000: 22).

Importantly, Pearson holds that unconditional welfare erodes not just self-regarding values but other-regarding values as well. The mentality promoted by welfare, he writes, has had “a disastrous impact on Aboriginal systems of sharing and obligations” (Pearson, Reference Pearson2000: 31). Whereas traditional Aboriginal society was “a truly wondrous social system based on reciprocity and care”, it has been “corrupted” (Pearson, Reference Pearson, Botsman and Latham2001: 139; Reference Pearson2000: 31, 66). The values at the heart of Aboriginal law – “trust, respect and mutual help” – have been displaced (Pearson, Reference Pearson2000: 5). He claims “passive welfare undermines and ultimately unravels traditional relationships and values – and gives rise to social problems and, ultimately, social breakdown” (Pearson, Reference Pearson2009a: 329). The weaker members of society – children and the elderly – suffer most from this displacement of customary norms of care (Pearson, Reference Pearson2000: 31). Defenders of welfare consider one of its virtues to be its capacity to enable people to escape control by others (for example, their family members) (Goodin, Reference Goodin1998: 123). Pearson on the other hand argues that the freedom from constraints which welfare makes possible has greatly undermined social order, making daily life chaotic within contemporary Aboriginal communities. This chaos contrasts unfavourably, he believes, with the arrangement in classical Aboriginal society whereby providers of resources had authority over recipients (Pearson, Reference Pearson2007) and even with the social order imposed by the more successful Christian missions following colonisation.

Pearson is not unique in arguing that welfare corrupts norms of mutual help. Other conservative critics of welfare believe that “welfare states warp our sense of collective responsibility” (Schmidtz, Reference Schmidtz1998: 64). Saunders, for example, asserts that “the expansion of government has ‘crowded out’ voluntary self-provision, philanthropy and mutual assistance” (Saunders, Reference Saunders2007: 54). These conservatives believe the welfare state compares unfavourably with the voluntary institutions which predate it, such as friendly societies, through which people pooled risks and took responsibility for the well-being of others in their community (Schmidtz, Reference Schmidtz1998: 63–72). They contend that such institutions were “a major source of community strength” (Saunders, Reference Saunders2007: 54) and gave better expression to other-regarding virtues, such as community solidarity and collective responsibility, than distant government bureaucracies.

Proposals for conservative welfare reform are frequently criticised by defenders of welfare entitlements on the grounds that their most enthusiastic advocates are people with little firsthand knowledge of the lives of welfare recipients (O’Connor, Reference O’Connor2001: 231; Wacquant, Reference Wacquant2009). The racialization of welfare (Gilens, Reference Gilens1996) makes it easy to doubt the sincerity of welfare reform advocates’ empathy for the poor (Goodin, Reference Goodin1998: 114). Pearson's entry into this debate is significant and, in the Australian context, has had a transformative effect. This is partly because Pearson was an Indigenous land rights campaigner of national significance before becoming a social reformer and partly because as an Aboriginal person from a remote community he has firsthand knowledge of daily life among the economically marginalised. He speaks from his observations of how welfare has affected the norms in the communities he knows and his empathy with the downtrodden and racially oppressed is more difficult to question than other welfare reform advocates'.

Comparison of Pearson's and Sandel's arguments

There are many parallels between Sandel's and Pearson's arguments. Sandel argues that marketising goods changes their character. He observes that:

Sandel challenges this, arguing that market exchange can change what the goods being exchanged mean to us: “markets and commerce change the character of the goods they touch” (Sandel, Reference Sandel2012: 202).

Pearson makes much the same argument about welfare. Pearson disputes the economist's assumption that the value of an item isn't affected by how one came by it. He believes that things that are purchased with welfare money are valued less. The institution of welfare devalues the money it provides: “Welfare money does not have the same value as personally earned money” (Pearson, Reference Pearson2000: 22). Pearson contends this is because:

Pearson claims that people are disinclined to invest the money they have if they are conditioned to believe that, regardless of what they do today, tomorrow will bring another cheque. The passivity that welfare engenders leads to the squandering of the resources it provides (Pearson, Reference Pearson2009b: 99). He writes:

Once the nexus between effort and reward is broken by welfare, people waste their time and their opportunities (Pearson, Reference Pearson2000: 23). For this reason Pearson concludes that “passive income is not a sustainable basis for a society in the long term” (Pearson, Reference Pearson2005: 5).

Both Pearson's and Sandel's arguments are affirmations that there are intangible things that matter as much or more than material goods. Pearson is arguing that this is true even for those in poverty. He testifies that:

Pearson says that the situation in Cape York shows that “Access to material goods and cash is not itself a guarantee of success” (Pearson, Reference Pearson2000: 15–6). Pearson and Sandel are both worried about the meanings that allocative practices express. Sandel is concerned by what putting a dollar sign on certain goods expresses. Pearson is concerned about what not putting a dollar sign on other goods expresses. Just as “some of the good things in life are corrupted or degraded if turned into commodities” (Sandel, Reference Sandel2012: 10), some good things are perceived to be less valuable, argues Pearson, if they are distributed in accordance with the logic of residual welfare. Pearson and Sandel also draw attention to what allocative practices express about people. Sandel worries that allowing the rich to buy their way out of queues erodes civic norms. Pearson worries about the effect of a highly stigmatizing form of welfare on recipients’ self-esteem and identity. The centrality of recipients’ deficits to the allocative logic of residual welfare means that welfare payments always convey the message that there is something wrong with the recipient (Cape York Institute for Policy and Leadership, 2005: 6).

Sandel explicitly says that market values ‘crowd out’ other values we should care about (Sandel, Reference Sandel2012: 113). The problem Pearson describes can also be framed in terms of some values crowding out others: in communities which are heavily dependent on welfare, the principle of need alleviation starts to crowd out other important values. Aboriginal people come to believe that as society's victims “it is their right to have assistance without reciprocation” (Pearson, Reference Pearson2000: 21). Just as Sandel worries that social relations are being “made over in the image of the market” (Sandel, Reference Sandel2012: 11), Pearson believes “passive welfare has come to be the dominant influence on the relationships, values and attitudes of our society in Cape York Peninsula” (Pearson, Reference Pearson2000: 23).

Many of the values which Sandel worries will be crowded out by market thinking could be described as ‘other regarding’: he is worried about concepts such as friendship, altruism, intimacy, civic togetherness and mutual obligation. Pearson is similarly concerned about the crowding out of other-regarding values, especially those he associates with Aboriginal traditional culture such as caring for children and the elderly, trust, respect and cooperation for mutual gain. Pearson is also worried about the loss among the Aboriginal underclass of self-regarding norms, such things as self-reliance, personal responsibility, pride in one's own achievements, saving money for the future, taking care of one's possessions, protecting one's health, and investing in income-generating skills. When taken to an extreme these self-regarding values can be damaging – it is easy to join Sandel in finding too much self-regard and not enough other-regard in the present neo-liberal era – but the erosion of self-regarding values can be harmful too.

Why should we worry about the crowding out of self-regarding norms? Pearson would answer that some of the moral understandings that inform practices like waged labour are conducive to human well-being. In doing so he echoes Hume's and Smith's claim that commerce and industry promote the virtues of industriousness, assiduity, frugality and probity (Hirschman, Reference Hirschman1982: 1464–6). Like other conservative critics of welfare, Pearson celebrates ‘self-interest’ as a ‘powerful engine’ for individual and social development because he sees it as a spur to effort, improvement and innovation (Pearson, Reference Pearson2010). He connects the norms that markets promote with the development of the self-confidence and self-efficacy that the people of Cape York will need if they are to achieve progressive social change. If Sandel urges us to debate what of value we lose if our lives are dominated by the market, Pearson urges us to consider the psychological and social cost paid by communities dominated by welfare.

Both Sandel's and Pearson's arguments are rooted in a concern about a certain type of economic relation (markets, welfare) exceeding its proper bounds. Sandel is warning against the problems that come from the over-extension of market values into too many parts of our lives. This is a trend that has become particularly worrying in the USA and other parts of the world since the 1980s (Sandel, Reference Sandel2012: 5–6). Pearson is describing the negative impacts for communities in which the role of welfare has exceeded its normal boundaries. He claims that social democracy reaches its limit when “the fate of the disadvantaged [is] seen to depend too much on the altruism of the economically and socially integrated mainstream”, perversely undermining the self-regard of the poor (Pearson, Reference Pearson2010). In his part of the world this problem has been developing since the 1970s. Some of the communities Pearson writes about experience “almost complete dependence on cash handouts from the government” (Pearson, Reference Pearson2000: 5) as a result of colonial dispossession, geographic remoteness and inadequate schooling (Pearson, Reference Pearson2000: 14). In these historically and geographically exceptional locations, welfare has exceeded its proper bounds because it does not help people through temporary periods of unemployment but constitutes the main form of subsistence over a lifetime for “the permanently unemployed and marginalised” (Pearson, Reference Pearson2009a: 188).

Sandel and Pearson are both concerned about the cumulative effects of thousands of small transactions. Sandel points to commercial practices which appear to have been “morally contagious, or at least suggestive” (Sandel, Reference Sandel2012: 195). Though perhaps not overly troubling in themselves, practices such as selling the right to name stadiums has “prepared the public mind to contemplate further incursions of commercial practices into civic life” (Sandel, Reference Sandel2012: 195). It is the excess which is the problem (Sandel, Reference Sandel2012: 188). For Pearson the trouble with welfare is not each individual payment but their cumulative effect on people's mentality. This has come about because, in Cape York, which is far from labour markets, welfare payments are not sufficiently balanced with other sources of income: “When people have only one means of existence the nature of that income obviously influences their whole outlook” (Pearson, Reference Pearson2000: 23). He believes the lack of reciprocity welfare embodies is contagious from one sphere of life to another. People habituated to passive welfare who then develop drug or alcohol addictions “treat other people in our society in the same way as the passive welfare resource: these people (wives, girlfriends, parents, grandparents, children, relatives) are not valued and respected . . . These people are simply a source of resources (money, shelter, food, comfort and care) and they treat them accordingly (Pearson, Reference Pearson2000: 24–5).

The most important point of difference between Pearson and Sandel is that Pearson betrays elements of the blind enthusiasm for markets that Sandel cautions against. It is not obvious that Pearson and Sandel would agree on what the limits of markets should be. Pearson has reconciled himself to the inevitability of capitalism. He treats the laws of the free market as laws of nature. Pearson embraces the virtues of self-reliance and investment in human capital that are required for success in the market economy. He sees the market as an engine of growth rather than a driver of inequality. Pearson equates deriving an income from employment with achieving ‘independence’ rather than becoming dependent on employers, and overlooks entirely the downsides – such as loss of autonomy – connected with this form of dependence. He valorises “the moral worth of the productive individual within the market economy” (Martin, Reference Martin2001: 6), while ignoring other sources of self-regard such as unpaid caring work and other contributions to family and community wellbeing. Pearson's arguments have tended to find favour with those on the right, who are ready to concur that “mainstream employment is not only essential for material well-being, but also for self-respect” (Hughes, Reference Hughes2007: 90).

Pearson's enthusiasm for markets is connected to his endorsement of welfare conditionality. One of his proposed correctives to demoralisation is making welfare conditional on recipients’ compliance with certain social expectations, rather than a citizenship entitlement. The intention is for welfare conditionality to imitate the direct reciprocity of contribution and benefit found in market transactions. In light of the evidence Sandel presents for the crowding out of intrinsic motivation by extrinsic motivation, we should consider whether the extrinsic motivation created by welfare conditionality might undermine citizens’ intrinsic motivation to behave in the ways sought. It is also worth noting that making welfare payments more conditional on behaviour is unlikely to reduce their stigma or improve the self-regard of people receiving them.

Some on the left of Australian politics have been dismissive of Pearson's argument, associating calls for greater economic integration for Aboriginal people with the neoliberal quest to bring all parts of life into the realm of the market (Altman, Reference Altman, Altman and Hinkson2007: 310, 312). The importance of market ideology to Pearson's thinking can, however, be overstated. Pearson's argument is distinct from the libertarian complaint that the welfare state redistributes taxpayers’ money to the undeserving. He does not call for a reduction in social expenditure. Pearson addresses his argument not to the neo-liberal attackers of the welfare state, but to its supporters, “those of us who take seriously our social responsibilities and who passionately understand and support the important achievement of the welfare state” (Pearson, Reference Pearson, Botsman and Latham2001, 139).

Implications

Part of what makes Sandel's argument so compelling is his use of empirical evidence. Sandel draws upon a rich empirical literature from economics and psychology among other disciplines. Pearson's evidence base is his on-going observation of the communities of Cape York and the oral histories he has collected of the era before welfare came to these communities. There are also some experimental studies that speak to the issue he raises. Goodin (Reference Goodin1993) concludes from his review of the psychology literature that there is empirical evidence to support the claim that state-supported welfare could lead to moral atrophy. Furthermore, Bowles points to “numerous experiments [which] suggest that ‘earning’ a claim on a resource differs in psychologically important ways from simply receiving one” (Bowles, Reference Bowles1998: 104). However, recent experiments in the developing world offer evidence against the claim that people value free and subsidised resources less than those they pay full price for (Banerjee and Duflo, Reference Banerjee and Duflo2011: 57–58). It may be that it will be possible to deal with Pearson's argument by finding sufficient evidence to refute its empirical validity, but this has not yet been done. The plausibility of Pearson's causal claim means that it is not sufficient to dismiss it out of hand, especially since there is an ‘impressive’ amount of evidence consistent with the more general hypothesis that “economic institutions influence motivations and values” (Bowles, Reference Bowles1998: 76).

That said, even if it was proven that unconditional welfare erodes important values, there are still ways of defending unconditional welfare. After all, as Sandel concedes, “arguments from corruption are not always decisive” (Sandel, Reference Sandel2012: 154). Rather we need to assess the moral importance of the values being corrupted, and judge whether the cost of changing the meanings surrounding an activity outweighs other considerations. Ultimately there is a question here of which norms we cherish and want to protect.

A central element of the dispute over state-funded welfare programmes is whether self-reliance is an important value in the first place. Those of a social democratic persuasion believe conservatives overrate it. For example, Goodin writes: “Personal responsibility for welfare is a good thing, in its place. Our task must be to keep it in its place” (Goodin, Reference Goodin1998: 195). Even if defenders of welfare entitlements do believe that self-reliance is an important human value, one whose corrosion they would regret, they might still prioritise the value of alleviating material need. If their critics are right that state provision of welfare crowds out localized forms of mutual help that give better expression to public spiritedness, social democrats can still make the case that the benefits of universal pooling of risk outweighs this consideration (see for example Goodin, Reference Goodin1998: 162–167). Similarly if they conceded that unconditional welfare undermines social order by removing constraints, this might be a cost they consider worth paying for the sake of ensuring vulnerable people greater freedom from domination. In sum, defenders of welfare entitlements might concede that welfare does have moral downsides, but these moral downsides are worth putting up with because the alternatives are worse.

Greater scrutiny and coercion of individual welfare recipients is only one part of Pearson's proposed approach to the social problems of Cape York. He also argues for greater investment in human capital (particularly through higher quality schooling for children and better school attendance), and more government investment in regional economic development. These ideas are more promising and more in keeping with his core insight that the situation in Cape York is an aberration, in other words that welfare contributes to social deterioration only where opportunities for economic engagement are absent. Furthermore, economic transformation at a regional level need not be market-based. The hybrid economy approach to Indigenous development developed by economic anthropologist Jon Altman represents an alternative way of tackling Indigenous economic exclusion (Altman, Reference Altman2001; Altman, Reference Altman and Austin-Broos2005; Curchin, Reference Curchin2013). This strengths-based approach to development emphasises the need for government investment in social enterprises in industries in which Indigenous peoples resident in remote regions have particular advantages. Examples include land management for conservation, hunting and fishing, eco-tourism, and arts and crafts.