Of Markets and Morals

In Paul Ryan’s budget proposal, the word “growth” is mentioned a total of 96 times—16 times more than the phrase “social safety net,” which Ryan’s plan purports to strengthen. Liberals have often claimed that when market values like self-interest crowd out civic norms like willingness to pay taxes or deal fairly, markets and other liberal institutions malfunction. Studies have shown that when markets are introduced into situations that are usually dictated by morality, people replace their moral calculus with economic logic. In Haifa, Israel, when parents were charged a fine for picking up their children late from day care, they picked up their children an average of 30 minutes later than they would have otherwise, having effectively purchased extra day-care hours. Our propensity to replace moral norms (in this case, dealing fairly) with the capitalist value of self-interest has been reason for some to think that the conservative phobias of taxes and market regulation could ultimately erode the public values that structure America’s liberal society.

Yet as Samuel Bowles, professor emeritus of economics at the University of Massachusetts, points out, liberal societies like the United States and Britain have been shown to be among the states with the highest measures of rule of law, democracy, social equality, and trust. In the current issue of Philosophy and Public Affairs, Bowles suggests that traditional moral underpinnings of liberal institutions contribute less to their stability than other non-market aspects of liberal society, like legislatures, courts, and law enforcement.

Bowles locates the difference between liberal and non-liberal societies in how they legitimize civic norms. In liberal societies, the people whom society trusts to enforce civic norms—teachers, police, judges, etc.—are separated from their charges by anonymity, which is enhanced by uniforms, degrees, and official titles acquired through fair competition. Non-liberal societies, Bowles claims, resemble lineage-segmented societies, in which families linked by common ancestors were the primary social unit, and accordingly exclusively responsible for creating and enforcing civic norms for other members of their families. In the modern-day equivalent, the so-called in-group, members select norms for the group to follow, and punishment of disobedience is reserved for fellow members; that is, the norms are group-specific, not universal. For example, in The Godfather, the rule “don’t ever take sides with anyone against the Family, ever” only governed relationships within the Corleone family, not between Don Corleone and the other mafia dons.

Bowles’s distinction comes from a study that finds that Americans punish in the same way as the Danes, Brits, and Swiss, but very differently from Saudis, Ukrainians, and Russians. The following game was played in 15 quintessentially liberal (United States, U.K., Germany, Denmark, Australia) and non-liberal societies (Turkey, Russia, Saudi Arabia, China). A number of players were awarded an endowment and given the opportunity to anonymously contribute some, all, or none of their endowment to a common pot, which was then doubled or tripled and distributed in equal parts to all players. After all the players had made their contribution to the common pot, each was provided with information about the contributions of the others, and given the opportunity to pay—reducing their own payoff—in order to reduce the payoff of another member of the group.

In both liberal and non-liberal societies from Boston to Riyadh, players punished free riders—players who contributed less than average. But in non-liberal societies, players also punished the overachievers—players who contributed significantly more than average. That finding supports the claim that non-liberal societies’ civic norms define public morality as mere adherence to group norms; liberal societies, in contrast, follow universal norms, such as “deal fairly” or “do your share,” not “deal fairly only with your friends,” or “do your share only at home.”

Finally, that conclusion supports Bowles’s most important point: While norms themselves contribute marginally to the proper functioning of markets, the institutions that enforce them are the ultimate determinants of market stability. In lineage-segmented societies in which norms are both exclusively applicable to and enforced by familial and parochial loyalties, society does not protect members against norms that are made by self-interested leaders in the group. Liberal civic norms, in contrast, undermine the value of familial loyalties and free people to act on their social preferences (in the form of norms) without fear that such norms are the product of undemocratic interests. For example, in the absence of state-imposed sanction on traffic law violations, which applies equally to everyone, people might habitually run red lights, which in turn would unravel the social norm to observe traffic regulations.

Admittedly, the discussion here is about the long-run dynamics of society-level institutions and individual preferences, but Bowles’s study does have hints of what is most troubling about conservatives’ recent proposals. Although the extension of Bush tax cuts indicates that America’s level of generalized trust is lower than for example, Sweden’s or Denmark’s, it won’t undermine norms; nothing is certain but death and taxes, regardless of the tax rate.

However, as House Speaker John Boehner told his home state of Ohio last week, Republicans believe the current state of regulation, beefed up by last year’s Dodd-Frank Act, amounts to “a regulatory juggernaut in Washington that’s really threatening to derail the slight recovery we see in our economy… the list will scare you to no end.” It won’t matter if that attitude doesn’t result in any change in government policy, as previous studies would have claimed. But if Republicans weaken regulation, then as in the case of the traffic lights, the norm of fair dealing among corporate types could again unravel. And as the Great Recession of 2009 showed, that would be a significant blow to the health of liberal society.