Ethics and the Market

Insights from Social Economics

Betsy Jane Clary, Wilfred Dolfsma, Deborah M. Figart

• Publisher: Taylor & Francis
• Year: 2006
• Print ISBN: 9780415394611
• eBook ISBN: 9781134159499
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

Comprising cutting-edge work on the state of social economics today, this theoretically diverse book includes strong emphasis on the role of ethics, morality, identity, and society in economic theorizing.

Much existing economic theory overlooks ethics. Rather than situating the market and values at separate extremes of a continuum, Ethics and the Market contends that the two are necessarily and intimately related. This volume brings together some of the best work in the social economics tradition, with strong contributions and pedagogy, and a cross-national blend of economics, philosophy, and policy. The contributors embed the economic within the social, rather than viewing 'the economy' and 'society' as separable spheres of life activity, and in so doing, three key themes are illuminated, corresponding to the volume's tripartite structure:

• Morality and Markets
• Redefining the Boundaries of Economics
• Social Economics in Transition.

Ethics and the Market illuminates the diverse and dynamic theoretical approaches that are employed in social economics, reflecting on their continuously evolving relationship with neoclassical economics. Taking an innovative approach, this integrative book challenges traditional ways of thinking, and will prove vital reading for students and academics in the fields of Economics, Sociology, Gender Studies, and Public Policy.

1 Introduction

Betsy Jane Clary, Wilfred Dolfsma, and Deborah M. Figart

The moral and the social quality of conduct are, in the last analysis, identical with each other.

(Dewey 1966: 358)

In contrast with most economists, who believe that ethical considerations do not and should not interfere with market processes, the contributors to Ethics and the Market: Insights from Social Economics argue persuasively that ethics and the market are intimately and inextricably related. Much economic theory does not include ethics as part of economic behavior, and, in most economic models, ethical considerations, like psychological motivations, habits, or customs, are treated only in general and all are purged from the market and from economic behavior. This view neatly reflects the way many economists believe ethics should be involved in their own work: not at all. These economists aim to pursue a value-free conception of academic work in which the science of prediction is separable from political or ethical visions of what should be. The unsustainable nature of this view is laid bare in this volume. At the level of market processes as well as at the level of economic theory, the contributions in this volume demonstrate the role of ethics in the market. For social economists within the heterodox economic tradition, ethics, morality, identity, and social values permeate economic practices, even when they go unacknowledged or are explicitly disavowed. The economic sphere is embedded within the larger social sphere, and “the economy” and “society” are not viewed as separate or at least separable spheres of life activity (see, for example, Dolfsma et al. 2005).

Rather than situating the market and values at separate extremes of a continuum, Ethics and the Market contends that the two are necessarily and intimately related. In a similar vein, Irene Van Staveren (2001) has noted that mainstream economists neglect the mutual interdependence of three values: freedom, care, and justice. Instead, they have focused on the market as a sphere characterized by freedom to the exclusion of other values, which are relegated to separate spheres of interpersonal relations and the state. Though one may contest this particular characterization, her analysis points to the need for broader discussions (see, for example, Davis 2003), even if the strictures of Occam’s Razor would then be violated (Hirschman 1988).

Among the few prior contributions to this discussion, most tend to start from the standpoint of one of the extremes, ethics or the market. For this reason, an in-depth account of either of the extremes is neither presented in this introduction nor in any of the chapters. Not only are introductions or elaborations of such views readily available – the reader may refer to Charles Wilber (1998) for one on ethics, for instance – such an approach may soon end up in one extreme attempting to incorporate the other without changing much itself, or even reflecting on itself. A case in point is Kurt Rothschild’s scholarship in Ethics and Economic Theory: Ideas, Models, Dilemmas (1993). Rothschild does provide a relatively early critical assessment of the relationship between economic theory, scientific objectivity, and ethics. In addition, the author argues that it is very difficult for the economist to study “laws” of economics without even touching ethical questions; economic theories, despite claims of objectivity, either implicitly or explicitly have aspects that have ethical implications. Leland Yeager (2001), similarly, writing from an institutional economic perspective, argues that economics without ethics is sterile, calling for economists to be aware of their ethical position/standpoint. Nevertheless, Yeager’s approach to the issue is starting squarely from one of the perspectives, attempting to understand ethical considerations from the perspective of the market, or vice versa, as an add-on (see also Anderson 1995; Hamlin 1996).

In contrast, this volume does not study ethics from the perspective of economics or deconstruct the ethics within economics, but aims to actually integrate the two. In doing so, it is necessary to formulate the implications of ethical considerations for economic concepts, by, for example, looking at the concept of the individual as more than homo economicus. If and when this means that core concepts need to be fundamentally rethought or replaced, so be it. In addition, different macro- and microeconomic topics can and need to be related to ethics, as it matters what perspective is taken. In actual fact, then, we sympathize with the admonition of Shoshana Grossbard-Shechtman and Christopher Clague (2001) that the discipline of economics needs to be expanded, so that economists can draw from related fields such as sociology, political science, industrial relations, social psychology, and business/management. Taking the next step toward building a new and more useful theory/paradigm, our argument, implicit in the remainder of this volume, is that reaching this goal might only be possible by first understanding how the market and ethical concerns are conceptually related. Any prior belief that a “science” such as economics or the academic study of ethics needs to be value-free is incorrect. Values will permeate boundaries, and we had better acknowledge this (see Wilber and Hoksbergen 1986) if our theories are to be of any use and benefit.

The volume and the chapters

Economic orthodoxy is increasingly under fire from multiple directions, and some leading figures in the field acknowledge that fundamental concepts might have to be seriously reconsidered. One angle from which sustained criticism has come is that of social economics. Social economics has a coherent framework to offer, one that has been developed and used for considerable time and which provides economics, as well as other social sciences, with a rich source of insights in the opening decade of the twentyfirst century. This volume brings together some of the best work in the social economics tradition. The chapters are selected from nearly 100 separate contributions to the Eleventh World Congress of Social Economics, in Albertville, France, in June 2004. What ties the contributions together is the issue of how ethics and the market are connected.

Three key themes are illuminated, corresponding to the parts of the volume. In broad strokes, the three parts of Ethics and the Market proceed from an examination of the moral implications of markets, to reflections on transformations in economic theorizing, to transformations in the institutional arrangements of social economies themselves. The first part of the volume interrogates the central institution of mainstream economic theories: the market. Market mechanisms are contextualized by examining the relationship between economic forces and morality, community, social capital, and ethics. The second section of the volume analyzes transformations within both the dominant economic paradigm and that of social economy. These contributions treat individual and household decision-making in a much richer and more comprehensive way than in neoclassical economics. The chapters in this section also suggest that social economics is a diverse and dynamic theoretical approach, whose relationship to the dominant paradigm has been continuously redefined. The final section showcases some of the empirical research conducted by heterodox social economists that focuses on economic development in a global context.

Part I, “Morality and markets,” explores how moral and ethical questions can be incorporated into the study of political economy. Does the expansion of market relations, via globalization and the deepening dependence on market mechanisms via commodification, undermine moral and ethical behavior, or does it not? In Chapter 2, Jens Beckert examines the effects of morally motivated behavior on market outcomes and claims that these are “ambivalent.” Actors in economic context behave by moral conviction if they act in accordance with some principle that is oriented toward the well-being of others or the common good, and such behavior is followed even if it demands forgoing additional personal profit (or utility). The extent to which morality plays a role for market exchange is widely contested, not only within economics but within sociology as well. While economists in the neoclassical tradition see moral action as blocking economically efficient outcomes, economists from other, heterodox, theoretical traditions presume that the logic of self-interest must be moderated by morality for the “common good” or even for the functioning of markets themselves. Both positions are also found in sociological thinking. Beckert critically examines the following questions. Does morality hinder economic efficiency or is morality a necessary condition for markets to operate? Which problems, exactly, can be resolved through morally motivated behavior? And what limitations to economic efficiency are caused by morality? While a social mechanism can help overcome market failure, it can also have negative effects.

Jon Wisman’s chapter assesses the forces within the growth and development of capitalism that threaten communities and the ensuing costs of such “creative destruction.” Social economics is uniquely positioned to evaluate the meaning and nature of community. The author explores both the contemporary plight of community and the potential for its renewed strength. In the subsequent chapter, Greg Hannsgen analyzes this issue in more detail with an application to banking. Hannsgen asks how personal and social relationships foster trust that might facilitate banking transactions. He claims that one should not see such transactions as a pure commodity in the sense defined in textbook economics. Changes in the way both consumers and firms borrow money have implications for governance and equality of access to credit. Marketization of commercial lending, by depersonalizing economic processes, may eliminate some of the biased practices that were fostered by personal ties between borrowers and lenders. The “rituals of banking” may interfere with efficient market outcomes. On the other hand, marketization may increase risk, since personal relationships were a means of obtaining information. The author concludes that new financial arrangements are not necessarily more or less stable than the old financial order; the key to stable and democratic institutions lies in appropriate governance.

Jonathan Wight, in Chapter 5, concludes the opening section. Wight explores the extent to which markets can create the kind of society we want by focusing on the ethical foundations of economics, making a strong claim that this topic should be presented explicitly in the courses we teach. Wight discusses how the content of a principles course would change with modeling ethical conduct in markets, developing the example of the treatment of the global economic system. Would and, if so, how would efficiency arguments change when ethical approaches to globalization are duly considered? The author asserts that understanding the ethical foundations of economics is a crucial skill in a student’s toolkit. The development of critical thinking, for instance, ultimately requires the cultivation of individual moral judgment, and that judgment goes beyond simple categories of “right” versus “wrong” as the classics teach us. The authors in this opening section are not of one mind on this question.

Alternative perspectives about the prospects for transcending the hegemony of neoclassicism in the economics discipline and differing conceptions of social economy as an alternative paradigm are presented in Part II, “Redefining the boundaries of economics.” A hallmark of the neoclassical framework – the individual – is conceptually scrutinized. Social economics starts with a socially embedded individual. The chapters included in this section expand the notion of the socially embedded individual and address such questions as how we are to conceive of individual identity; what sort of framework for evaluating the well-being of individuals within households is appropriate; and how we account for the existence and actions of organizations and institutions that are commonly referred to as part of the “social economy” or “third sector.”

In the opening chapter of the section, John Davis contends that the limits of the rational individual as economic agent are seen as undermining the legitimacy of mainstream formulations. He provides a basis for the consolidation of social economics as an alternative. Specifically, Davis observes that we are in the midst of an historical transition in economics, with neoclassical economics being increasingly pushed aside. In particular, he argues that the fact–value distinction appears to have entered upon a qualitatively different chapter in its history. Davis terms this a “destructive phase,” in which it works to eliminate neoclassicism’s past value commitments in vague anticipation of a coming creative phase when a new set of dominant values will be promoted, again under the false cover of neutrality. The author’s objective is to provide a diagnosis of the current destructive phase of the fact–value distinction in terms of the breakdown of the atomistic conception of the individual, and then advance an alternative, viable conception of the individual as socially embedded. Davis takes an explicit stand in relation to what an individual is (and ought to become) as he develops a model of identity. Miriam Teschl then provides a contrast with Davis in Chapter 7. According to Teschl, (some) economists do not fail to represent an economic agent with an identity, but these models do not explicitly account for her identity. The concept of the homo economicus has only an implicit model of identity, a model that can be brought to light and made explicit. Making identity explicit in our models is an issue to be taken seriously within economics, because the way economists model the economic agent’s identity will affect (the modeling of) behavior and choices. Further, and very importantly, the identity model may shape social policy recommendations.

One area to which such profound discussions relate is the household. Elizabeth Oughton and Jane Wheelock’s contribution in Chapter 8 in large part follows the previous discussion, yet the authors extend it by analyzing how consumption and production are intimately related in social contexts. Consumption is often considered a good, providing positive utility, with spending income a proxy for obtaining well-being. In contrast, involvement in production is a disutility, a sacrifice of well-being. The orthodox economic calculus assumes that both consumption and production are governed by formal rationality. But if we look at production and consumption in terms of social relations, then we can introduce substantive rationality as an additional analytical tool. A social economics perspective views consumption and production holistically, as complementary rather than oppositional. Both incorporate social relations, so that both can be understood in terms of social relationships. Drawing on Amartya Sen and others, the authors provide a conceptual examination of the creation and distribution of intra-household wellbeing.

The meaning of the term “social economy” (économie sociale) has evolved and has remained contested over time, especially in France. Danièle Demoustier and Damien Rousselière put into perspective current policy debates taking place in France most pressingly, but elsewhere as well, by returning to the history of the constitution of “social economy” as a social science and as a set of “social practices.” The phrase “social economy” was used in classical political economy in the early nineteenth century, and contributions to the field from the social-Christian tradition of the followers of Henri Saint-Simon and from scientific socialism are also significant. Social economy, the science as well as the set of practices, has thus changed over the last century and more. Social economics, once defined as simply a broadening of traditional political economy, has now become, the authors claim, an alternative perspective in its own right. Carole Biewener (in Chapter 10) extends the argument, if only in a geographical sense. Biewener addresses the alternative vision embodied in different “social economy” traditions in France and in Québec, Canada, utilizing two texts representative of two different, though related, traditions: Alain Lipietz’s For the Third Sector: The Social Economy and Solidarity and Louis Favreau’s and Benoit Lévesque’s Community Economic Development: Social Economy and Intervention (titles translated into English). Biewener compares how each defines the boundaries, contours, and character of that which comprises the social economy by considering how the social economy is understood in relation to the “state” and the “commodity sector.” Both the French and Québécois traditions offer significant, exciting, and vibrant economic alternatives to market capitalism that encompass an important range of social and economic activity and that offer improved criteria for shaping economic activity.

Macroeconomic questions concerning how to shape economic development, both locally and globally, are addressed in Part III, “Social economies in transition.” The process of liberalized development currently “in fashion” – and promoted by international agencies such as the World Bank – may trample over local institutions and culture. The authors in this section highlight the dangers of policies built on a narrow economic vision, from the erosion of the fabric of rural life in the United States to the pathologizing of ethnic diversity in Africa, and from indifference to the gendered impacts of financial crises to the appropriation and dilution of the concept of social capital. The authors provide substantive analytical tools for reconceiving policy analysis that utilize insights of social economics. Building on and developing broader conceptions of market mechanisms, the chapters consider the many implications of economic liberalization and homogenization on the social and physical environment. In Chapter 11, Laura McCann develops a novel theoretical approach to welfare economics that calls for an evaluation of “societal” externalities. She argues, specifically, that the increased agricultural productivity experienced during the twentieth century has had tremendous benefits for both farmers and for society as a whole, but it has also resulted in unintended effects on the environment and on rural communities. While the environmental externalities have been extensively studied by economists, societal effects have been largely ignored. McCann argues that these effects can be incorporated into economic analyses using the techniques that have been developed for non-market valuation of environmental goods.

Introducing cultural factors along with economic factors in the development process, Manuel Branco follows with a critical analysis of the concept of “culture” and its use. Ethnic diversity in Africa and other developing regions supposedly inhibits the development of strong, democratic nation-states. Branco asserts that not only does this approach posit a universalist trajectory for development; it obscures the cultural diversity that is also present in advanced industrial countries. The author offers that his defense of culture should not be mistaken for radical relativism or the consecration of difference. Instead, principles of consociational democracy as a foundation for a pluralist development policy offer a “third way” between the dominant, neoclassical model within development studies that ignores difference, on the one hand, and the particularistic fundamentalism that depoliticizes the development process on the other. Tonia Warnecke’s chapter follows with an adept summary of feminist critiques of economic liberalization policies, positioning her within the heterodox finance literature. She argues that growing numbers of financial crises, fueled by liberalization, which have aggravated the poverty problem, particularly among the world’s women, might be attributed to an incomplete and biased framework. Using Sen’s capability approach, Alexandre Bertin and Nicolas Sirven conclude the volume by providing a rigorous framework to evaluate the role that social capital plays in poverty reduction. Their purpose is to find an analytical framework that could support a strict definition of social capital and preclude the limitations of the World Bank’s more traditional analysis using this term.

In the final chapter, Ethics and the Market: Insights from Social Economics returns to its central theme of how to structure social institutions to create an economy that enhances well-being. This volume, then, emphatically argues, as in John Dewey’s Democracy and Education, that we should n...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Illustrations
• Contributors
• Preface
• Acknowledgments
• Abbreviations
• 1 Introduction
• Part I Morality and markets
• Part II Redefining the Boundaries of Economics
• Part III Social economies in transition