I don't remember whether I sent this transcript before, apologies if I 
did. I feel it makes some lucid points about the dangers of reducing the 
world to marketable forms of rationale.

Jonathan

http://entertainment.timesonline.co.uk/tol/arts_and_entertainment/tv_and_radio/article6485444.ece


  Reith lecture: a price for everything but at what cost?


We live in a time of financial crisis and economic hardship — everybody 
knows that — but we also live in a time of great hope for moral and 
civic renewal. We saw this hope in the election of Barack Obama as 
President of the United States. In many democracies around the world 
there is a similar hope, a restless impatience with politics as it is. 
In Britain the public has been outraged by revelations that Members of 
Parliament have claimed reimbursement for inappropriate housing 
expenses. Whatever reforms may emerge, one thing is clear: the better 
kind of politics that we need is a politics oriented less to the pursuit 
of individual self-interest and more to the pursuit of the common good.

A new politics of the common good isn’t only about finding more 
scrupulous politicians. It also requires a more demanding idea of what 
it means to be a citizen, and it requires a more robust public discourse 
— one that engages more directly with moral and even spiritual questions.

If we’re to reinvigorate public discourse, if we’re to focus on big 
questions that matter, questions of moral significance, one of the first 
subjects we need to address is the role of markets, and in particular 
the moral limits of markets. We’re living with the economic fallout of 
the financial crisis and we’re struggling to make sense of it. One way 
of understanding what has happened is to see that we’re at the end of an 
era, an era of market triumphalism. The past three decades were a heady, 
reckless time of market mania and deregulation. We had the free-market 
fundamentalism of the Reagan-Thatcher years and then we had the 
market-friendly Neo-Liberalism of the Clinton and Blair years, which 
moderated but also consolidated the faith that markets are the primary 
mechanism for achieving the public good. Today that faith is in doubt. 
Market triumphalism has given way to a new market scepticism. Almost 
everybody agrees that we need to improve regulation, but this moment is 
about more than devising new regulations. It’s also a time, or so it 
seems to me, to rethink the role of markets in achieving the public 
good. There is now a widespread sense that markets have become detached 
from fundamental values, that we need to reconnect markets and values. 
But how? Well, it depends on what you think has gone wrong. Some say the 
problem is greed, which led to irresponsible risk-taking. If this is 
right, the challenge is to rein in greed, to shore up values of 
responsibility and trust, integrity and fair dealing; to appeal, in 
short, to personal virtues as a remedy to market values run amok.

We might call this diagnosis “the greed critique”. But the greed 
critique is flawed or, at best, partial. Markets have always run on 
self-interest. From the standpoint of economics, there is no real 
difference between self-interest and greed. Greed is a vice in personal 
relations, but the whole point of markets is to turn this vice into an 
instrument of the public good. This is the moral alchemy that markets 
are said to perform. We learn this from Adam Smith who said: “It is not 
from the benevolence of the butcher, the brewer or the baker that we 
expect our dinner, but from their regard to their own self-interest.” 
“We address ourselves not to their humanity,” he said, “but to their 
self-love. Nobody but a beggar chooses to depend chiefly upon the 
benevolence of his fellow citizens.” This was Adam Smith. So it’s 
tempting to say that all we need to do is to rein in greed and restore 
integrity among bankers, business executives and politicians, but this 
response is mainly hortatory: comforting for a time, but not much help 
in rethinking the role that markets play in our societies. So what’s the 
alternative? The alternative is to rethink the reach of markets into 
spheres of life where they don’t belong. We need a public debate about 
what it means to keep markets in their place. And to have this debate, 
we have to think through the moral limits of markets. We need to 
recognise that there are some things that money can’t buy and other 
things that money can buy but shouldn’t.

Looking back over three decades of market triumphalism, the most fateful 
change was not an increase in the incidence of greed. It was the 
expansion of markets and of market values into spheres of life 
traditionally governed by non- market norms. We’ve seen, for example, 
the proliferation of for-profit schools, hospitals and prisons; the 
outsourcing of war to private military contractors. We’ve seen the 
eclipse of public police forces by private security firms, especially in 
the US and the UK, where the number of private guards is more than twice 
the number of public police officers. Or consider the aggressive 
marketing of prescription drugs to consumers in the United States. If 
you’ve ever seen the television commercials in America on the evening 
news, you could be forgiven for thinking that the greatest health crisis 
in the world is not malaria or river blindness or sleeping sickness, but 
a rampant epidemic of erectile dysfunction. Or consider some recent 
proposals to use market incentives to solve social problems. Some New 
York City schools are trying to improve academic performance by paying 
children $50 if they get good scores on standardised tests. In Dallas, 
they’re trying to encourage reading by paying children $2 for each book 
they read.

Or consider the vexed issue of immigration policy. Gary Becker, the 
Nobel prize- winning free-market economist at the University of Chicago, 
has a solution: to resolve the contentious debate over whom to admit, 
the US, he says, should simply set a price and sell American citizenship 
for $50,000, or perhaps $100,000. Immigrants willing to pay a large 
entrance fee, Becker reasons, would automatically have desirable 
characteristics. They are likely to be young, skilled, ambitious, 
hard-working; and, better still, unlikely to make use of welfare or 
unemployment benefits. Becker also suggests that charging admission 
would make it easier to decide which refugees to accept — namely those 
sufficiently motivated to pay the price. Now you might say that asking a 
refugee fleeing persecution to hand over $50,000 is callous. So consider 
another market proposal to solve the refugee problem, one that doesn’t 
make the refugees themselves pay out of their own pockets. An American 
law professor proposed the following: that an international body assign 
each country a yearly refugee quota based on national wealth. Then let 
nations buy and sell these obligations among themselves. So, for 
example, if Japan is allocated 20,000 refugees a year but doesn’t want 
to take them, it could pay Poland or Uganda to take them in. According 
to standard market logic, everyone benefits: Poland or Uganda gains a 
new source of national income; Japan meets its refugee obligations by 
outsourcing them; and more refugees are rescued than would otherwise 
find asylum. What could be better?

There is something distasteful about a market in refugees, even if it’s 
for their own good, but what exactly is objectionable about it? It has 
something to do with the fact that a market in refugees changes our view 
of who refugees are and how they should be treated. It encourages the 
participants — the buyers, the sellers and also those whose asylum is 
being haggled over — to think of refugees as burdens to be unloaded or 
as revenue sources rather than as human beings in peril. What this worry 
shows is that markets are not mere mechanisms. They embody certain 
norms. They presuppose, and also promote, certain ways of valuing the 
goods being exchanged. Economists often assume that markets are inert, 
that they do not touch or taint the goods that they regulate. But this 
is a mistake. Markets leave their mark. Often market incentives erode or 
crowd out non-market incentives.

Let’s go back to the case of cash for kids who make good test scores. 
Why hesitate to pay a child for getting good marks or for reading a 
book? The goal, after all, is to motivate the child to study or to read, 
and the payment is an incentive to promote that end. Economics teaches 
that people respond to incentives, and while some children may be 
motivated to read books for the love of learning, others may not. So why 
not use money to add a further incentive? Economic reasoning would 
suggest that two incentives work better than one, but it could turn out 
that the monetary incentive undermines the intrinsic one, leading to 
less reading rather than more, or to more reading in the short run but 
for the wrong reason. In this scenario, the market is an instrument but 
not an innocent instrument. What begins as a market mechanism becomes a 
market norm. The obvious worry is that the payment may habituate 
children to think of reading books as a way of making money, and so 
erode or crowd out or corrupt the intrinsic good of reading.

A study of some Israeli childcare centres offers a good real-world 
example of how market incentives can crowd out nonmarket norms. The 
centres faced a familiar problem — parents sometimes came late to pick 
up their children, and so a teacher had to stay with the children until 
the tardy parents arrived. To solve this problem, the childcare centres 
imposed a fine for late pick-ups. What do you suppose happened? Late 
pick-ups actually increased. Now if you assume that people respond to 
incentives, this is puzzling. You would expect the fine to reduce, not 
increase the incidence of late pick-ups, wouldn’t you? So what happened? 
Introducing the fine changed the norms. Before, parents who came late 
felt guilty; they were imposing an inconvenience on the teachers. Now 
parents considered a late arrival a service for which they were willing 
to pay. Rather than imposing on the teacher, they were simply paying her 
to stay longer.

Part of the problem here is that the parents treated the fine as a fee. 
It’s worth pondering the distinction. Fines register moral disapproval, 
whereas fees are simply prices that imply no moral judgment. When we 
impose a fine for littering, we’re saying that littering is wrong. 
Tossing a beer can into the Grand Canyon not only imposes clean-up 
costs; it reflects a bad attitude that we want to discourage. Suppose 
the fine is $100 and a wealthy hiker decides it’s worth the convenience. 
He treats the fine as a fee and tosses his beer can into the Grand 
Canyon. Even if he pays up, we consider that he’s done something wrong. 
By treating the Grand Canyon as an expensive dumpster, he’s failed to 
appreciate it in an appropriate way.

Now the distinction between a fine and a fee is relevant to the debate 
over how to reduce greenhouse gases and carbon emissions. Should 
government set limits on emissions and fine companies that exceed them? 
Or should government create tradeable pollution permits? The second 
approach says in effect that emitting pollution is not like littering; 
it’s simply a cost of doing business. But is that right, or should some 
moral stigma attach to companies that spew pollutants into the air? To 
decide this question, we have to do more than simply calculate costs and 
benefits. We have to decide what attitudes toward the environment we 
want to encourage.

At the Kyoto conference on global warming in 1997 the United States 
insisted that any mandatory emission standards would have to include a 
trading scheme, allowing countries to buy and sell the right to pollute. 
So, for example, the US could fulfil its obligations either by reducing 
its own greenhouse gas emissions, or by paying to reduce some other 
countries’ emissions. Rather than tax gas-guzzling Hummers at home, it 
could pay to restore an Amazonian rainforest or modernise an old 
coal-burning factory in a developing country.

At the time, I wrote an opinion piece in The New York Times arguing 
against the trading scheme. I worried that letting countries buy the 
right to pollute would be like letting people pay to litter. We should 
try to strengthen, not weaken, the moral stigma attached to despoiling 
the environment, I thought. I also worried that if rich countries could 
buy their way out of the duty to reduce their own emissions, we would 
undermine the sense of shared sacrifice necessary to future global 
co-operation on the environment.

After my piece ran, the paper was flooded with scathing letters — mostly 
from economists, some from my own university. I utterly failed to 
understand the virtue of markets, they said, or the efficiencies of 
trade, or even the most elementary principles of economic rationality. 
Amid the torrent of criticism, I did receive a sympathetic e-mail from 
my old college economics professor. He understood the point I was trying 
to make, he wrote, but could he ask a small favour: would I mind not 
publicly revealing the identity of the person who had taught me economics?

I’ve since reconsidered my views about emissions trading to some extent, 
but I continue to think that in addressing this question most economists 
miss the crucial point: norms matter. In deciding how best to get global 
action on climate change, we have to cultivate a new environmental 
ethic, a new set of attitudes towards the planet we share. We’re 
unlikely to foster the global co-operation we need if some countries are 
able to buy their way out of meaningful reductions in their own energy use.

Perhaps the best-known example of market norms eroding or crowding out 
non-market norms involves the case of blood donation. The sociologist 
Richard Titmuss compared the United States system, which permitted the 
buying and selling of blood for transfusion, with the system in the UK, 
which banned financial incentives and relied wholly on donated blood. 
Titmuss found that rather than improve the quality and supply of blood, 
the commercialisation of blood led to shortages, inefficiencies and a 
greater incidence of contaminated blood. His explanation: putting a 
price on blood turned what had been a gift into a commodity. It changed 
the norms associated with blood donation. Once blood is bought and sold 
in the market, people are less likely to feel a moral obligation to give 
it out of altruism.

The late pick-ups at childcare centres and the bad blood brought about 
by the use of market incentives are cautionary tales. They remind us 
that markets leave their mark on social norms. This does not by itself 
establish that marketising goods always changes norms for the worse. To 
decide where the market belongs and where it should be kept at a 
distance, we have to decide how goods and social practices are properly 
valued.

My general point is this. Some of the good things in life are corrupted 
or degraded if turned into commodities, so to decide when to use markets 
it’s not enough to think about efficiency; we have also to decide how to 
value the goods in question. Health, education, national defence, 
criminal justice, environmental protection and so on — these are moral 
and political questions, not merely economic ones. To decide them 
democratically, we have to debate case by case the moral meaning of 
these goods in the proper way of valuing. This is the debate we didn’t 
have during the age of market triumphalism. As a result, without quite 
realising it, without ever deciding to do so, we drifted from having a 
market economy to being a market society. The hope for moral and civic 
renewal depends on having that debate now.

© Michael J. Sandel. He is the Anne T. and Robert M. Bass Professor of 
Government at Harvard University. His book Justice is published in 
September by Penguin. The next three Reith lectures will be broadcast on 
Radio 4 on Tuesdays at 9am