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On the role of social norms in a market economy

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  • Gordon Bergsten

Abstract

Given that the discussion in Section 2 focuses on but two potential sources of norms and on only a pair of variables affecting the activities of these sources, it may appear premature to attempt to generalize about the supply of NETN norms in a market economy. However, based on the above discussion, it is nevertheless quite reasonable to hypothesize that the norms market will not operate in such a way as to ensure the proper supply of NETN norms. The ‘failures’ found by economic theory in the economic marketplace and by PETP in the political market have their analogue in the norms market. That this can be said with some assurance even though the investigation has been so limited is due to the importance of the variables and group activities investigated. The specific structural characteristics (the high degree of specialization in society) and the specific cluster of values (those related to individualism) examined above and found to be inhibitory to the supply of NETN norms, are of considerable importance and their negative impact on the norms market cannot readily be altered. In the first place, these variables are significantly and synergistically related to one another; but secondly, and more importantly, these variables are so closely associated with the market economy itself, that short of replacing the market, little can be done to diminish the negative effect that these variables have on the supply of NETN norms. The relationship between the high degree of specialization in society and individualism is not limited to the oft noted obvious one of cause and effect. One additional link is especially significant here as it calls attention to possible relationships between the professional organization and the family. Recall that while the professional organization may lack the will and the capacity to either instill or enforce NETN norms, it does find it in its interest to produce codes of ethics and to foster the belief that these codes constrain professional behavior. There are non-trivial externalities associated with this code production/marketing process. One likely effect of the demand enhancing and supply restricting strategies of which the production of codes is a part, is to reinforce meritocratic and individualistic values and provide legitimacy for inequality (Larson, 1977: Chapter 12). The presence of these values and beliefs not only inhibits the sanctioning process of the professional organization, it also makes more difficult the family's task of instilling norms that enable people to deal non-instrumentally with others. As is often the case with production processes, the ‘by-products’ of the code production process swamp in overall significance the code itself. Of even greater significance than the mutually reinforcing relationships between specialization and individualism, though, are two other connections: one links the high costs of producing NETN norms to the high degree of specialization and to individualistic values; the other links the latter two variables with the market itself. It is this set of connections that underlies the claim made above that NETN norms are not likely to be generated in a market economy. While the connection between the division of labor and the market is a familiar one and while it may appear obvious that the presence of individualistic values impedes the creation of other regarding norms, what merits some elaboration is the connection between the division of labor and the high cost of producing norms on the one hand and the relationship between individualistic values and the market on the other. The above discussion of the division of labor variable dwelt upon its negative impact on the family's ability and incentive to foster the development of the empathic capacity that underlies NETN norms. There may well be a much more direct connection between the division of labor and NETN norms. For example, it may be that the capacity to empathize is greater the more people are similar, Gergen, Morse, and Gergen (1980: 138) report that ‘various American studies... show a stronger tendency to help similar than dissimilar others.’ and that people are more apt to be similar the more their roles are interchangeable. The cross-cultural findings of Whiting and Whiting (1975) are consistent with this. They conclude: ‘Children brought up in complex cultures tended to be more dependent / dominant and less nurturant / responsible than children brought up in simpler cultures.’ (p. 128). What makes the degree of specialization variable interesting, of course, is its link with the market. If a high degree of specialization, a characteristic of market economies, works directly and indirectly to inhibit the emergence of those norms the market itself requires, then there appears to be little hope that the appropriate norms will emerge in a market setting. Were other characteristics of market economies to have effects similar to those of specialization, the prospects would be dim indeed. And some of these clearly do work in the same direction; for example, consider mobility. Its effects, like those of the division of labor may be both indirect and direct. A high mobility rate contributes to the loss of community and the decay of the extended family, both of which may make the creation and enforcement of NETN norms more costly. Other possible detrimental effects of a high mobility rate include a decreased likelihood that prestige will be based on honesty (for this an element of recognizability is mandatory) and in general a decline in trust (never trust a stranger). A high mobility rate, like a high degree of specialization in society, while part of what we mean by the market, may actually undermine the conditions favorable to the development of NETN norms and thus the smooth functioning of the market. Certain values and beliefs as well as certain structural characteristics of society also affect the creation and maintenance of NETN norms. These values and beliefs being a part of society's ideology are in turn related to the institutions of society. One significant institution, the market itself, may foster values and beliefs which function to increase the cost of supplying NETN norms. The values of (certain types of) freedom, individualism, privacy, materialism, as well as certain conceptions of justice can be seen as inhibiting the emergence and maintenance of NETN norms on the one hand, and as likely outcomes of market relationships on the other. For example, to the extent that the market fosters the impression that each person is an independent self-sufficient entity it contributes to an individualistic ideology which in turn makes it difficult for individuals to understand others' suffering when in need and thus makes it less likely that others' interests will be taken into account. See, for example, the discussion of the relationships between the market and the personality characteristics of ‘sociocentrism’ and ‘identification with moral values’ in Lane (1981). Similarly, while obligatory conceptions of justice are probably more compatible with NETN norms, the market is apt to foster a desert conception (Miller, 1976: 295–299). The latter rendering of justice makes it easy for individuals to overlook others' vulnerability and need for help. Moreover just as it fosters some values and beliefs which increase the costs of supplying NETN norms, so too the market may make it difficult for values more compatible with NETN norms to find expression. For example, a sense of community which would provide a friendly environment for NETN norms, may well require what the market prevents from happening: Community depends on the intention that people have in acting, and merely knowing that your actions have good consequences is not the same as intending them. There must be a direct intention to benefit others for us to speak of fraternity or community. The reason for this is that community refers to the quality of relationships between people and our relationships to others depend on our perception of their intentions toward us.... [M]arkets, far from creating community between people, actually prevent it from emerging by obliging people to act in a self-interested way even if they would prefer to be altruistic. D. Miller (1977: 487) quoted in Carens (1981: 198–199). In sum then, several core characteristics of the market economy (e.g. a high degree of specialization and mobility) on the one hand and values and beliefs closely associated with markets (e.g. freedom, desert conceptions of justice, and individualistic beliefs) on the other hand, work to inhibit the expression of the norms the market requires. Of course, this does not entitle us to conclude that these norms will therefore not emerge. There is always the possibility that other aspects of market life work in the other direction. See, for example, Hirschman's (1982) discussion of various accounts that see commerce as a moralizing agent; also see Lane's discussion of market effects on personality (1981: 8–16). Moreover, even if the overall offsetting influence of these aspects were insufficient, the market is, after all, but one of many institutions that affect the supply of norms. A complete discussion would assess the impact of governmental, educational and religious institutions on the norms market. While even a brief excursion into this area would take us far beyond the intended scope of this paper, the most cursory glance at a couple of the issues is sufficient to indicate the significance of these topics, the poverty of our current understanding, and the shallowness of contemporary normative theorizing which ignores these issues. For example, take government. The possible connections between government activity and the norms market are great in number and at this point inestimable in overall impact. Consider the following plausible but often contradictory types of influence that have surfaced in some recent discussions. On the scope of government activity: Does a large government ‘crowd out’ norms (e.g. see Taylor, 1976) or provide an enhanced opportunity for expression of other-regarding impulses (e.g. see Lane, 1981)? Does the removal of important things to deliberate from the public domain make it more difficult ‘to engage the time and imagination of the citizenry for the purpose of conducting public business’ (Landy and Plotkin, 1982: 16) or does it free individuals to act morally? Does an active government prompt self-regulation (e.g. Engelbourg, 1980) or discourage it? Or consider specific kinds of activity government may engage in: Can we expect the family law generated by government to have the desirable impact on mobility and other variables that affect the supply of social norms? Do we have reason to believe the government's education policy will result in offsetting the stultifying effects of the division of labor that so clearly and appropriately bothered Adam Smith? ‘In the progress of the division of labour, the employment of the far greater part of those who live by labour, that is, of the great body of the people, comes to be confined to a few very simple operations, frequently to one or two. But the understandings of the greater part of men are necessarily formed by their ordinary employments. The man whose whole life is spent in performing a few simple operations, of which the effects too are, perhaps, always the same, or very nearly the same, has no occasion to exert his understanding, or to exercise his invention in finding out expedients for removing difficulties which never occur. He naturally loses, therefore, the habit of such exertion, and generally becomes as stupid and ignorant as it is possible for a human creature to become. The torpor of his mind renders him, not only incapable of relishing or bearing a part in any rational conversation, but of conceiving any generous, noble, or tender sentiment, and consequently of forming any just judgment concerning many even of the ordinary duties of private life. Of the great and extensive interests of his country he is altogether incapable of judging; and unless very particular pains have been taken to render him otherwise, he is equally incapable of defending his country in war. The uniformity of his stationary life naturally corrupts the courage of his mind, and makes him regard with abhorrence the irregular, uncertain, and adventurous life of a soldier. It corrupts even the activity of his body, and renders him incapable of exerting his strength with vigour and perseverance, in any other employment than that to which he has been bred. His dexterity at his own particular trade seems, in this manner, to be acquired at the expence of his intellectual, social, and marital virtues. But in every improved and civilized society this is the state into which the labouring poor, that is, the great body of the people, must necessarily fall, unless government takes some pains to prevent it.’ (Smith, 1937: 734–735). Etc. etc. Even if we were to confine our attention to the impact of Normative Economic Theories of Politics (NETP) prescribed government activities on the norms market, what becomes apparent is that what needs to be qualified and amended is not so much the conclusions being drawn here about norms market failures as the NETP prescriptions themselves. A consideration of NETP prescriptions alerts us to the possible negative consequences that these NETP (market failure) justified government policies have on the norms market. For example, the use of the efficiency criterion to select policies for dealing with market shortcomings neglects the impact such policies may have on the norms market. Thus, income redistribution in the form of a Guaranteed Annual Income may well conform to NETP guidelines, but because it may have an undesirable impact on family durability (Coleman, 1982: 166–174) it may have adverse consequences on the norms market. Similarly, although a tax on pollution passes the efficiency test as an appropriate way to handle a problem that is (NETP) appropriately government's, by essentially ignoring the moral issues involved (e.g. what the motives of the offender are) it renders irrelévant beliefs that would have us give weight to the moral dimension (Kelman, 1981). These moral beliefs, and the norms which such beliefs may help sustain, by being thus restricted in their range of application, may atrophy for want of exercise. In general it may well even be that to adopt NETP prescribed (political) solutions for (economic) market failures is to contribute to norm market failure. But there is much more to it than this. Looking to government to not only make up for (economic) market failure but to also handle problems in the norms market is to overlook the basic problem. To expect government, and/or other non-economic institutions, to function at all, much less along lines that promote NETN norms, is to assume that certain social norms are operative — indeed it is to assume that much the same NETN set is operative. Thus while it is true that the market may not be the only source of the norms, and while it is true that our current understanding of the effects other institutions have on the supply of norms is very much deficient, it is also true that insofar as these other institutions require NETN norms to have the desirable impact, the market (and characteristics, beliefs, and values associated with it) by frustrating the development of these norms works simultaneously to impair the ‘proper’ functioning of the other (potentially complementary) institutions. The last remark suggests both a fitting way to end this paper and a new way to begin the work that lies ahead. If it is the case that the several institutions we see as playing a (larger or smaller) role in society are all based on a common set of prerequisite norms for their proper functioning, and that what distinguishes them is the extent to which the various institutions rely on the norms on the one hand (e.g., more trust and honesty may be required among deliberators than among bargainers — Landy and Plotkin, 1982: 14) and the extent to which the institutions themselves encourage or inhibit the emergence and persistence of the necessary norms on the other hand, then the question that this paper addresses should be rephrased. It should not be ‘What is the proper role for Social Norms in a Market Economy’, but rather what is the proper role for the market in a society whose goal is to (efficiently) produce the kind of person NETN helps us describe: truthful, caring, and trusting. Whether the best answer to such a question would recommend significantly delimiting the role for the market is of course difficult to predict. Carens (1981) discusses a politico-economic system which combines the market with an equal distribution of income and the use of moral incentives. He argues that in this design, ‘reliance on the market can enhance rather than diminish the sense of fraternity and community.’ (p. 199). Regardless of the form the answer takes, though, it does seem ironic that economic analysis, assuming as it does rational economic man, and married as it has been for so long to the market, that this same economic analysis should help us not only identify failures of market and non-market institutions, but also help us trace the causes of these failures back to the market and to rational economic man. Orthodox economic analysis is indeed a subversive science. Copyright Martinus Nijhoff Publishers 1985

Suggested Citation

  • Gordon Bergsten, 1985. "On the role of social norms in a market economy," Public Choice, Springer, vol. 45(2), pages 113-137, January.
  • Handle: RePEc:kap:pubcho:v:45:y:1985:i:2:p:113-137
    DOI: 10.1007/BF00215060
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    References listed on IDEAS

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    1. Lane, Robert E., 1981. "Markets and Politics: The Human Product," British Journal of Political Science, Cambridge University Press, vol. 11(1), pages 1-16, January.
    2. Gary S. Becker, 1981. "A Treatise on the Family," NBER Books, National Bureau of Economic Research, Inc, number beck81-1, March.
    3. Hirschman, Albert O, 1982. "Rival Interpretations of Market Society: Civilizing, Destructive, or Feeble?," Journal of Economic Literature, American Economic Association, vol. 20(4), pages 1463-1484, December.
    4. Anthony Downs, 1957. "An Economic Theory of Political Action in a Democracy," Journal of Political Economy, University of Chicago Press, vol. 65, pages 135-135.
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    2. Stephan Müller & Georg von Wangenheim, 2014. "The impact of market innovations on the evolution of norms: the sustainability case," MAGKS Papers on Economics 201432, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    3. Butter, Frank A.G. den & Mosch, Robert H.J., 2004. "Externalities of social capital : the role of values, norms and networks," Serie Research Memoranda 0010, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
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