Service with a smile – the market economy and civic virtue

Michael Sandel is in town at the moment to promote his book How Markets Crowd Out Morals. His article on the subject in the Boston Review is a clever piece that makes some interesting points. But, ‘what is the policy conclusion?’ one is left wondering. Perhaps that is explained in the book.

The thesis is that markets are often found wanting on the grounds of fairness and because they corrupt society by crowding out a sense of civic virtue and so on. I will leave the former hypothesis to others – John Tomasi has done a decent job here.

But, what about corrupting virtue? It may be reasonable to suggest, as Sandel does, that virtues require practice and that, if we try to subject everything to buying and selling in a market economy, it may prevent the practice of the virtues and reduce the amount of virtuous behaviour. If we just give money to charity, and do not actually help the poor and the sick (especially in our own family), for example, we may become less virtuous people. However, Sandel’s example of this problem immediately shows that he is going up a blind alley – or at least that he is contributing little that is interesting and original.

Sandel uses the following as an example. He mentions that a slim majority of people in a village in Switzerland agreed to accept a nuclear waste installation when it was put to the vote. However, when they were offered money, their sense of civic duty collapsed and support evaporated. All very interesting…or perhaps not very interesting at all.

Moving on to compare France and Britain, one finds a very different picture. In Britain, it is extremely difficult to build a nuclear power station. Indeed, any large infrastructure project proposal brings out the worst in the local residents, with the most recent example being the proposed Heathrow expansion. There is no civic duty, just one citizen in battle against another – with the most powerful and most articulate winning. This partly explains why we have only nine nuclear power stations in the UK. Moving across to free-market France (at least as far as the planning system is concerned) there is no trouble building high speed rail, nuclear power stations (there are 59 in France) or pretty much anything else. The local residents, of course, are compensated. Planning takes place by agreement, peacefully, as those who lose one resource (their environmental amenities) are compensated with another resource (money with which they can do what they wish).

And this is one of the fundamental points about markets. They lead to resource allocation by agreement. This is a marvellous thing.

Sandel’s assertion that much more is ‘marketised’ in the modern world is just not true. One hundred years ago, much more of education, unemployment insurance, health (at least in Britain), sickness insurance, and so on was provided through the market. The market, in many senses, was a place where virtue operated. The motto of the London Stock Exchange (an entirely private body which, until 1986 regulated all securities trading) was ‘my word is my bond’. What is the FSA’s motto, one wonders? Perhaps it should be: ‘ticking boxes makes the world a safer place’. As the philosopher H. B. Acton has pointed out, perhaps it is the fact that markets have been pushed out of so many important areas of life and confined to the production and exchange of consumer goods that the market now looks like a process of ‘getting and spending’.

So, if Sandel’s argument is that allocation by the market should be limited and/or replaced by allocation by the state, he is on to a non-starter.

If Sandel is saying that many things are not best done by markets but in what I often call ‘the free economy outside the market economy’ and/or that we ought to act morally and virtuously within a market economy – for example by not allocating university places to the children of donors (to use another of Sandel’s examples) then he is saying nothing remotely original. What is fundamentally wrong, however, is this dividing up of the world into silos (market, civic and so on) with each silo having distinct characteristics. As employers, consumers, sellers of products and so on we have ample opportunity to practise the virtues that Sandel admires. There is no reason whatsoever for the market to crowd out those virtues. Indeed, in many respects, the discipline of the market economy cultivates virtues. Getting out of bed on time; keeping a decent appearance; service with a smile; not answering back and getting haughty with customers…all these virtues you will find in the staff of McDonalds. All are nurtured by the market economy and the spur it provides towards improving one’s own position by serving others.

Philip Booth is Senior Academic Fellow at the Institute of Economic Affairs. He is also Director of the Vinson Centre and Professor of Economics at the University of Buckingham and Professor of Finance, Public Policy and Ethics at St. Mary’s University, Twickenham. He also holds the position of (interim) Director of Catholic Mission at St. Mary’s having previously been Director of Research and Public Engagement and Dean of the Faculty of Education, Humanities and Social Sciences. From 2002-2016, Philip was Academic and Research Director (previously, Editorial and Programme Director) at the IEA. From 2002-2015 he was Professor of Insurance and Risk Management at Cass Business School. He is a Senior Research Fellow in the Centre for Federal Studies at the University of Kent and Adjunct Professor in the School of Law, University of Notre Dame, Australia. Previously, Philip Booth worked for the Bank of England as an adviser on financial stability issues and he was also Associate Dean of Cass Business School and held various other academic positions at City University. He has written widely, including a number of books, on investment, finance, social insurance and pensions as well as on the relationship between Catholic social teaching and economics. He is Deputy Editor of Economic Affairs. Philip is a Fellow of the Royal Statistical Society, a Fellow of the Institute of Actuaries and an honorary member of the Society of Actuaries of Poland. He has previously worked in the investment department of Axa Equity and Law and was been involved in a number of projects to help develop actuarial professions and actuarial, finance and investment professional teaching programmes in Central and Eastern Europe. Philip has a BA in Economics from the University of Durham and a PhD from City University.

3 thoughts on “Service with a smile – the market economy and civic virtue”

  1. Posted 24/05/2012 at 12:43 | Permalink

    Link to Tomasei article is broken

  2. Posted 24/05/2012 at 13:20 | Permalink

    @Paddy Manning – Thanks for pointing out the broken link. It has now been restored.

  3. Posted 24/05/2012 at 13:25 | Permalink

    Philip, this is an excellent summary of Sandel’s position. The problem with his argument, as you imply, is his point of comparison. He is not comparing markets now with a 100 years ago, but with some idealised notion of the ‘good society’ that existed in the imaginations of the left in the 1960s and 1970s. Many on the left take this ideal of state intervention as normal and any divergence from it as an aberration, which if it were not for Murdoch, big oil and Wall St, would have confined to history years ago.

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