Should Everything have a Price?

Michael Sandel in his recent book “What Money Can’t Buy: The Moral Limits of Markets” writes excellently on how the market economy has turned into the “market society”. This view echoes Galbraith and “The Affluent Society”. Galbraith’s warning from the 1950’s has not been heeded – we are now subject to the “market” in everything we do – anything and everything has a price.

 

Sandel cites many examples – such as someone selling their organs, someone saving a place in a queue, schools being sponsored by companies and many others.

 

It could be argued that it was always so. Slavery, the selling of humans in the marketplace, was a common market phenomenon and still exists. Bribery and corruption – the selling of favours or ensuring something goes in your favour – remains common and Iraq and Afghanistan are riven by corruption on the grandest scale. Russia and much of Eastern Europe are held to be gangster nations – like much of the USA in the time of prohibition. Somalian pirates resort to kidnapping as an outcome of pure economic theory.

 

Yet, society does, from time to time, attempt to apply limits in a world where it seems that everything has a monetary price.

 

Market domination

 

The libertarian view that the market should be allowed to rule means that we abrogate our responsibilities. It is the role and duty of civil society (usually through Government) to judge where market rules and where other forms of decision-making are paramount.

 

We make those judgments continually. The right to be safe on the streets is, in most developed societies, made possible by laws which are enacted through general agreement by citizens. It is enforced, where needed, by legal systems and enforcement agencies – again, only there by the general agreement of civil society. In those countries where the market and price dominate, then the danger is that laws and police forces can be bought off. This is the case in many eastern European countries and many countries in Africa. Bribery and corruption rule through what may be called the market society – against the agreement of most of its citizens. As Sandel points out, this is against the best outcome for society – and by a long way.

 

Libertarians may argue that a legal system and an “open society” are the foundations for market economies to work, but the world is a global economy and it is no longer possible for one country to be cut off from the rest. The market domination into so many areas of life is a threat if basic norms do not exist.

 

The market versus societal norms

 

Sandel does not go too much into how society develops its norms – where market pricing should not intrude. We are in danger, of course, of taking on pricing into every form of our lives and there are plans to price our natural resources and to ensure that accounting incorporates aspects of social life into accounting rules – for example, through the Prince’s Accounting for Sustainability Project; through the Natural Capital Committee – which will report into the UK Government’s Economic Affairs Committee, chaired by the Chancellor of the Exchequor.

 

While this acknowledges the problem in one respect (i.e. we are not properly accounting for externalities like pollution, the loss of natural capital – our rivers, forests and such) it is perhaps giving up the struggle against the market society. By the very nature of accounting in terms of numbers for such “externalities”, we subscribe to the essential condition for market pricing of everything – the market society is allowed to dominate.

 

Our focus on GDP and numbers betrays a failing of society – our inability to see anything outside of numbers – so-called economic wealth. GDP, which rewards only that which can be measured, has been a poor simulation of real “wealth”. Our drive to economic success (measured by how many unnecessary items we make and buy) takes no account of what is really important. Ability to buy is all that “counts” – literally.

 

Societal norms are now up for sale. Instead of a rearguard action against the market society (as against market economics) where we defend those areas of society against pricing (as they should be beyond price), we succumb to pricing everything. This leads to everything having a price – an accounting-driven doctrine, a market society doctrine.

 

Beyond economics

 

Of course, this may be the price (!) we are paying for economic growth and relative economic success. As we become more economically successful and as the world derives basic economic success, maybe our brains are becoming hard-wired to numbers as the only register of what is successful. The left-hand side of the brain is assuming victory over the right.

 

There is no question that the discovery of numbers has made the human successful and to understand and control large areas of science. We have changed the world entirely. Our ability to count is now dominating our lives. Since the dawn of accounting (when we counted our grain), numbers now “account” for everything.

 

Where has been the debate to question the way we account? If numbers dominate everything we do, what outcomes do we envisage, what changes result? If all our successes depend on numbers, then what lives will we lead?

 

This is now beyond economics – which, as George Soros has recently outlined, http://www.georgesoros.com/interviews-speeches/entry/remarks_at_the_festival_of_economics_trento_italy/

has been shown to be terribly mistaken in its misunderstanding of the world. His analysis, that economics, in trying to copy the rules of science has travelled the wrong path. Economics is a social science and, as such, does not have definitive outcomes. But, the situation is worse than Soros makes out.  Macroeconomics is being subsumed beneath a torrent of numbers so that, worse than following a quasi-scientific path, we are now following an accounting outcome for everything.

 

Where are the norms for society? Who are the guardians?

 

The financial crash of 2008, which is still playing out in 2012, opened up severe cracks in our economic system. It is also opening up divisions in society between the very wealthy and the large swathe of middle-income earners who make up most of civil society. These divisions show how we are valuing society and show clearly that pricing is not working. The value given to bankers and bonuses (no risk activities for the individuals who can only lose their jobs, not their wealth and no risk activities for the banks, who are too big to fail) shows a dramatic failing in pricing – in which we apparently put all our trust.

 

Pricing mechanisms are not working successfully, yet we place more and more of our faith in pricing as the only arbiter of success.

 

We now price (or will soon be attempting to price) everything – from CO2 to education, from healthcare to shoes, from our rivers to our right to pollute – everything with a price.

 

Yet, macro-economics (the economics of society) is a social science – it is not based on rigid rules. It is (as Soros rightly states) bound up in decisions and thoughts of men and women.

 

Pricing is one outcome of a social science that is not unquestionably right in every case – it is actually, mostly wrong and most economists are only good at describing what has passed (i.e. rear view mirror gazers).

 

Accounting was originally a micro-based activity – to help regulate and tax individuals and firms. It is now being used to price everything.

 

Are there any alternatives to pricing everything?

 

Of course there are, but it is becoming tougher. The Bribery Act in the UK (following a mere 34 years after the Foreign Corrupt Practices Act in the US) is an example. Society has (at least in the UK) decided that winning contracts or influencing economic decisions should not be subject to corruption. In China, as Jonathan Fenby’s excellent “Tiger Head Snake Tails” so ably describes, bribery and corruption have existed for many years but (at least at home) it is not considered acceptable. In many other countries in the developing world, it is.

 

But, we know that price is in play throughout society. The best lawyers cost huge sums and only the wealthy can afford them – so, our legal system is subject to pricing. The best education is paid for; the best healthcare is paid for.

 

With wealth divisions becoming wider, pricing is everything. It is time for a real debate in society on how economics needs to be changed to reflect reality and how accounting for everything (and a price for anything) may not be the answer. The invisible hand of the market should not be allowed to grab everything.

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Natural Capitalism – Economics Missing Link

Does the establishment of a “Natural Capital Committee” – NCC (which will report into the Economic Affairs Committee – chaired by the Chancellor of the Exchequer) herald a change in thinking in the West about the importance of our natural world? The result of The Natural Environment White Paper, the Natural Choice: Securing the Value of Nature, it does mark a potential for change in the way that British Governments view the economy and the impact of economic progress on the environment.

DEFRA’s website ( http://www.defra.gov.uk/naturalcapitalcommittee/) states: “By reporting into the EA Committee and the Chancellor, this Committee has the opportunity to truly influence the economic policy of the UK for the good of the natural environment.”

This has been an understated move that has virtually had no publicity amongst the swirl of economic and austerity measures that seem to dominate our lives. As the government decides who will Chair the committee and populate it, the sound of recession, bankers’ pay, unemployment and lack of economic growth (here and overseas) crowd out any other debate.

Yet, CO2 emissions continue to grow and the drive for renewed economic growth here (and continuing economic growth in China and elsewhere) dictates the future quality of our lives more fundamentally than the setting up of a small committee (subsidiary to the EAC). No matter who Chairs the NCC, its voice will be very small unless the Natural Capital community and those as interested in the quality of our lives as in the quantity of our economic performance develop an ability to shout louder.

Natural Capital is defined by the Natural Capital Initiative (www.naturalcapitalinitiative.org.uk) as:

Natural capital:
the term ‘capital’ is used to describe a stock or resource that produces revenue or yield. Natural capital is usually interpreted as an economic metaphor for environmental assets, such as forests, soils or marine habitats that supply resources to the economy or offer a receptacle for disposal of wastes. Four basic categories of natural capital are generally recognised: air, water (fresh, groundwater and marine), land (including soil, space and landscape) and habitats (including the ecosystems, flora and fauna which they both comprise and support). The quantity and the quality of natural capital affect the quantity and quality of benefits generated.
So, how important has the subject become – is the role of natural capital in our decision-making yet central or peripheral? Is this even a debate or a quiet discussion in hushed rooms? Is this just a British issue or one that is expanding to a world scale?

There is no doubt that champions exist that want desperately to make this a central issue in all economic debates and have a strong desire to internationalize it. As the world struggles to untangle itself from 19th Century dogma in politics and economics and to integrate natural capital into the mainstream, there is no doubt that key advances are starting to be made.

For example, the world of accounting is leading one strand through the International Integrated Reporting Committee (IIRC) which last year issued a report on the integration natural capital into corporate reporting. This begins to link (even if peripherally) the micro and macroeconomies through natural capital – although as economists have failed to link the two for the last 250 years, the impact is not yet clear.

Nevertheless, macro and micro events are starting. Natural Capital (the link between the human and financial capitals that dominate economic thinking – the missing link of economics) is beginning to grow in importance. Natural capitalists (those who can anticipate this change) are what we have to become – ensuring that the world in which we live is considered as more than a simple “externality” and becomes a critical element in economic decision-making. Natural capital needs to fight for airtime amongst politicians and economists still mired in the mindsets of the 19th Century. It is a start.