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Are Market Behaviors Moral?

By on November 17, 2011 – 8:00 am  11 Comments

Kathryn Britton, MAPP '06, former software engineer, is a coach working with professionals to increase well-being, energy, and meaning in their work lives (Theano Coaching LLC). She is also a writing coach, facilitator of writing workshops, and teacher of positive workplace concepts at the University of Maryland. Her own books include Smarts and Stamina on using positive psychology principles to build strong health habits and Character Strengths Matter: How to Live a Full Life. Full bio. Kathryn's articles are here.



Do you think of marketplace behavior as neutral, negative, or moral? Paul Zak and other researchers argue that market behavior on the whole is moral behavior that both benefits from and contributes to social connectedness. In fact, Zak argues that Confucius, Aristotle, and others are wrong to look down their noses at trade. Surprised? Read on.

Social Exchanges

I recently heard a lecture by David Halpern, policy advisor to 10 Downing Street and author of The Hidden Wealth of Nations. What caught my imagination was Halpern’s description of economies of regard, informal care-based exchanges based on reciprocity rather than altruism. He illustrated the idea with care-based exchanges in Japan, where people can earn care credits that they can only spend to acquire similar levels of care for their loved ones. For example, assume you are living in Tokyo and your mother is living three hours away, even by a fast train. She has a fall and temporarily needs care that you would really like to be able to give her. But unfortunately you cannot take time off from work to travel to her small town.

A Cared-For Mother

So you volunteer to help out someone else’s mother who lives close to your home in Tokyo. You go to the grocery store for her, take her to the doctor, and install hand rails to prevent future falls. You help her with her physical therapy, and you drop by several times a week to see what she needs. It takes time, but it doesn’t require long hours of travel. You send the care credits to your mother, who uses them for the care she needs, which she gets from someone who, like you, is earning care credits for a beloved family member.

You could just hire a home-care nurse to take care of your mother, paying for the service with money. But somehow, your mother feels differently that you earn her care with your time. When the care-taker arrives, it reminds her that you do know how to care for people, that she did teach you that people are important. She understands that the travel distance makes it hard for you to be with her, but you aren’t ignoring your responsibility.

My godmother lived 15 miles away from my home, while my mother lives nearly 3000 miles away. Several times over the last few years, I moved in with my godmother to care for her after an injury. It only occurred to me when I listened to David Halpern that my experience caring for my godmother made it possible for me to call on friends in my mother’s town when she needed help. It made me aware that friends may actually welcome the opportunity to help my mother and find it rewarding. Without that experience, I’d be embarrassed to ask because I’d feel that I was imposing on them. So giving thus makes it easier to receive.

Trust and Economic Performance

Citing research by Beugelsdijk and colleagues on the impact of social trust on economic performance, David Halpern made the statement that social capital and trust have a greater impact on economic growth than human capital and education. Halpern described policies in different parts of the world that appear to lead to greater social connections, including Patient Hotels in place of hospitals in Sweden and the Yellow Ribbon program in Singapore for welcoming people back into the community after prison, which has greatly reduced recidivism. From what I can see, there is considerable debate about the robustness of the relationship between trust and economic growth. What’s interesting are major economic implications, such as the statement made by Paul Zak and Stephen Knack, “If less than 30% of people in a country think their compatriots are trustworthy, investment will be so low that positive income growth will not occur.”

Moral Markets?

Thinking both about the reciprocity represented by care credits in Japan and the connection between trust and economic growth, I went searching for relevant research. I was happy to find work by Paul Zak, professor of Neuroeconomics, Economics, and Neurology at Claremont Graduate University. Here are just a few of the points I’ve picked up from his papers and online videos.

Market Exchange

  • People are social creatures exquisitely prepared for exchange. In particular, an uncoerced market exchange requires gains for both parties. That stopped me for a moment, but it makes sense. When I do my grocery shopping, I “win” food for my table, which I need more than the money I give up. The grocery store “wins” revenue and profit which it needs more than food that will otherwise spoil on the shelf. If I don’t feel I am winning enough for my money, I can shop at a different store.
     
    One of the signs of a successful partnership, in my view, is sufficient trust in my partner that I worry more about doing my share than I do about what the other contributes.
     
  • We have three mechanisms in the human brain that appear to provide a moral compass: mirror neurons that help us experience what others around us experience, theory of mind which enables us to see things from another’s point of view, and affective representations that allow us to internalize the emotions of others. Moral behavior is driven more by emotions than by reasoning.
     
  • The release of oxytocin appears to facilitate reciprocity. In experiments in his laboratory, Zak has found oxytocin release to be associated with a temporary attachment to a stranger who has demonstrated trust, which tends to lead to a desire to reciprocate. He claims that oxytocin release motivates virtuous behaviors of every sort, making people more generous, more compassionate, and more trustworthy.
     

    We use market scales...

    We thus have a biology that supports reciprocity. It feels right to cooperate with those who cooperate with us.
     
  • What about the cheaters that we hear so much about on the news? Zak comments that cheaters are much more memorable and newsworthy than the day-to-day win-win exchanges that go on all over the world. Or as Michael Shermer puts it, there are 10,000 small acts of kindness for every one act of random violence. So cheaters are represented in the news far out of proportion to their actual incidence in society. But cheating does occur. One reason may be that there are people who do not have a robust oxytocin response, perhaps because of genetics, because of lack of nurturing in childhood, or because of excessive stress. They may not be motivated to behave in trusting or trustworthy ways. But just as we have a biology for reciprocity, we also have a biology for punishment.
     
  • For most of the people most of the time, the desire to reciprocate joins with the fear of punishment – such as being shunned by our peers – to motivate moral behavior.

    “Having an appropriate balance between distrust and trust, and a mechanism that processes these quickly, permitted the formation of civilizations, a further division of labor and the creation of surplus.” Paul Zak

     

  • Indirect reciprocity involves doing things that are not direct exchanges. The Japanese care credits are a form of indirect reciprocity, as is the concept of paying it forward. This is an idea that goes back to our hunter gatherer days, when people found the best storage for surplus food to be in neighbor’s stomachs. Zak points out that indirect reciprocity requires that an animal has a long life and sufficient cognitive resources to remember social accounts for an extended period.

Zak claims that market exchanges give us an opportunity to practice moral behaviors, such as being trustworthy, and participating in win-win exchanges. As a result, markets are not only moral in and of themselves, but they also contribute to maintenance of moral behavior in other realms.

Food for thought!
 


 
References

Beugelsdijk, S., de Groot, H. L. F., & van Schaika, A.B.T.M. (2001). Trust and Economic Growth. Tinbergen Institute Working Paper No. 2002-049/3

Halpern, D. (2010). The Hidden Wealth of Nations. Polity.

Halpern, D. (2010). RSA Video about The Hidden Wealth of Nations.

Knack, S. & Keefer, P. (1997). Does Social Capital Have an Economic Payoff? A Cross-Country Investigation. The Quarterly Journal of Economics, 112 (4): 1251-1288.

Shermer, M. Description of his book, The Mind of the the Market.

Zak, P. & Knack, S. (1998). Trust and growth. Abstract..

Zak, P. (2011). Moral Markets: Paul Zak discusses Oxytocin, Trade, and Human Nature. Reason TV.

Zak, P. (2009). Neuroeconomist Paul J. Zak on Markets and the “Molecule of Love”. Reason TV.

Zak, P. The Science of Liberty.

Zak, P. (2011). Moral Markets. Journal of Economic Behavior and Organization, 77, 212-233.

Zak, P. (Ed.) (2008). Moral markets: the critical role of values in the economy. Princeton University Press.

Images
Cared-for mother by Sue Hacking and used courtesy of Kathryn Britton
Market exchange courtesy of Shreyans Bhansali
Scales in the marketplace courtesy of michelle molinari

11 Comments »

  • Great connections and questions, Kathryn. I would agree with you that markets, which are about groups, can favor the moral, whereas individuals, or individual companies, may not be so moral. I recently heard Daniel Pink who compared the employee working on a manufacturing assembly line to one working in a creative endeavor on a team. The individual was found to improve performance based on close supervision and a combination of “carrots and sticks”. Once you add the dimension of collaboration, though, performance improves without the “sticks”. In fact the punishment or sanction of some sort decreases performance. The example of the man offering a service to someone nearer to him that earns value to be used by his mother far away is a form of collaboration. It would require the high degree of trust that Halpern mentions. What does it take to have (nearly) everyone on that team? How do you find out who is and is not a moral individual when people’s lives may be at stake?

  • Lisa Sansom says:

    I have often wondered about the role of motivation in altruism / giving / generosity. If, for example, we give to someone else because we expect the return, are we still getting and giving the same positive boost as someone who gives out of true altruism, expecting nothing in return? I’m not convinced that it would work the same way. Similarly, if someone gives out of a sense of obligation, responsibility, social pressure (e.g. EVERYONE in the office gives to the charity…) then I would imagine we also lost that positive boost, as opposed to someone who gives freely and voluntarily. Just curious about how those mechanisms might work…

  • Sherri,
    I was talking about moral behaviors here, rather than moral individuals or corporations. Zak puts it this way in The Science of Liberty, “Studies across several scientific disciplines are accumulating evidence that modern free economies can only function if most people most of the time behave morally.” Behaving morally means working toward a win-win so that both sides benefit from the exchange. He calls it moral because it means we are being other-focused.

    I’m not sure that this idea carries over to motivation quite the way you sketch. I know that I remember asking myself at various points during my career, “Am I earning my salary?” which could be an example of concern over having the employment transaction be an ongoing win-win for me and my employer. But intrinsic motivation may take people beyond “meets expectations” (basic win-win) to “extraordinary performance” (win-win kicked up a knotch for both sides). Both could be moral, given that both could be win-wins, though in the second case both sides win more.

    So I think the punishment involved in markets is a different kind than you and Dan Pink describe. If I feel cheated by a merchant, I may shun the business or I may even blacklist it on the Internet. My aim is to reduce the cheater’s ability to profit from cheating.

    So when it comes down to who is trustworthy, that’s where the human radar for cheaters comes into play. Zak might argue that it isn’t as frequent one might suspect from recent news stories. Halpern might argue that too much fear of being cheated (lack of trust) stifles market growth. But it can happen in any exchange, so we keep our sensors open.

    Kathryn

  • Lisa,
    Interesting questions, though I’m not talking about altruism here — win-win means that both sides benefit.

    Aren Cohen and Derrick Carpenter have both written PPND articles about altruism:
    Silas Marner: Altruistic Love and The Gift of Giving. They might have more to contribute to your understanding.

    There may be studies about the benefits experienced by the individual giving totally voluntarily versus being socially nudged. I just don’t know them.

    Kathryn

  • Kathryn,
    Wow, food for thought indeed. Your presented question “Are Markets Moral?” can be answered on quite a few levels. Broadly I agree that markets are moral, but not because they in themselves are moral, but they facilitate behaviors that can be evaluated as moral or immoral (like a morality play). Markets by themselves are neutral environments that permit individuals or organizations to behave as they desire to satisfy their “needs” of selling or buying. Yet, within those exchanges they encourage the behaviors you identify in your article as moral. Concomitantly there are those individuals and organizations who behave immorally and though we might claim that they are in the minority, as Zak puts it, they are still in the market. We live in the aftermath of the immorality of some mega-organizations that put this country and the world on the brink of disaster. Their first thought was not the betterment of society, but the betterment of their wallets. By the way, they haven’t changed much; I work with some of them.
    What I take from your research is that markets have the potential to engage people morally in a mutual exchange that benefits everyone and that is what we need to promote. We hear way too much about those who misuse the market and it creates the impression that good things happen rarely. When the exchange is mutual and a win-win, as I witness in my store, it provides a positive moment for both parties and that is the market at its best. Thanks for some thoughtful ideas.

  • Scott,
    I changed the article title based on your comment, because (as I pointed out in my response to Sherri) it’s not people that are or are not moral in this argument, it’s people’s behaviors. Just so, it’s not markets, it’s market behaviors.

    I believe Zak argues that win-win transactions are so common that they don’t have much surprise value. But we don’t necessarily remember that newsworthy = high surprise value when we extrapolate from the news to generalizations about human behavior.

    He also argues that markets need efficient judgments about trustworthiness. Efficient means not always right.

    I don’t really know whether he is right that a heavy preponderance of transactions being win-win. For one thing, I want to believe it, which makes me wish there were some kind of kaleidoscope that we would twist and see all the different human behaviors according to their real frequency and impact. Wouldn’t that be fascinating!

    Kathryn

  • I think the Adam Smith analogy of the “invisible hand” is contrarian to a vision of markets that facilitate altruistic win-win kind of behavior. His perspective was that a free market system would allow each individual to selfishly pursue their own needs and the “invisible hand” of the market would incentivize them to provide benefit to society in spite of the selfishness of the individual. I think you could argue that market behavior in this sense is amoral (or neutral as Scott suggests). But another aspect to this is how well does the market system in fact contribute to the betterment of society. since our current system presumably measures benefit by demand, the good that comes from the market is limited by the foibles and follies of the desires of the individuals that make up the market with seemingly immoral consequences such as lawyers and baseball players reaping far more rewards from the system than teachers and social workers.

  • Jeremy,
    Let me answer with a quotation from Paul Zak’s Moral Markets. He has an entire section devoted to Adam Smith’s two major books, The Wealth of Nations and The Theory of Moral Sentiments.

    “So where is Adam Smith on morals and markets? Smith clearly distinguished self-interest from selfishness. Unlike Marx, Smith argued that self-interested behavior includes empathy for others: this is what allows us to live together in societies, and is the foundation for the reciprocity that enables impersonal exchange in market economies. There is no contradiction in Adam Smith’s two great books as moral sentiments precede and make possible the mutual gains available through market exchange. Indeed, the invisible hand of the market may well be our moral sentiments. Moral values help us determine when, and with whom, to exchange, producing a check on exploitation. Smith writes in TMS that “By acting according to the dictates of our moral faculties, we necessarily pursue the most effective means for promoting the happiness of mankind” (vol. II, p. 316), including our own happiness.” Paul Zak, Moral Markets, p. 216

    All I can say is, “Food for thought.”

  • Angus Skinner says:

    Kathryn
    What a great article! I am sorry that I did not hear David Halpern speak. The issues raised here are so important for all our futures. I absolutely agree with Zak that there is no contradiction between Smith’s two major works. Most of the world has only heard of one – The Wealth of Nations. Many others have argued that there are contradictions, what the Germans call “Das Adam Smith Problem” others have argued that he had intended a third over-arching work that brought the two closer together with a focus on aesthetics and, perhaps, spirituality. Part of the core of his arguments align strongly with his great friend David Hume’s famous argument that ‘Reason is and ever should be the servant of the passions.’ That was not to argue that reason was not important, indeed he considered very important. But what they were both arguing was that it is from our passions, especially compassion, that our moral judgements come. And that seems to me very attuned to what what you write – compassion across 3,000 miles. I shall go and look further at Zak. There is an interesting comparison with a recent book by Robert Frank -The Darwin Economy which argues that Darwin is the better argument than Smith’s. However I don’t think there is really much difference between different approaches. I think it is fantastic that so many economists are now arguing that there is more than reason and market forces. We face huge questions of how to build sustainable care, especially social care. And your very interesting article outlines some very interesting ideas. Many thanks Kathryn.

  • I came across a great example in The Long Winter by Laura Ingalls Wilder.

    Situation: 1880’s, The Dakotas, small town with homesteaders who have been snowed in long enough that they have run out of food. Using money from the local storeowner, two young men travel to a distant farmer and talk him into selling his seed wheat for $1.25 / bushel – where $.80 had been the market price in the summer. That conversation is interesting too, because he wanted the wheat for planting, but eventually agreed that a bird and a half in the hand is worth two in the bush. But the conversation that really struck me was the one between the storeowner and the townspeople when the storeowner decides to charge them $3.00 per bushel:

    Mr. Ingalls told him that they thought he was charging too much for the wheat.

    “That’s my business,” said Loftus. “It’s my wheat, isn’t it? I paid good hard money for it. … I’ve got a right to charge any price I want for it.”

    “That’s so, Loftus, you have,” Mr. Ingalls agreed with him. “This is a free country and every man’s got a right to do as he pleases with his property. Don’t forget every one of us is free and independent, Loftus. This winter won’t last forever and maybe you want to go on doing business after it’s over.”

    “Threatening me, are you?” Mr. Loftus demanded.

    “We don’t need to,” Mr. Ingalls replied. “It’s a plain fact. If you’ve got a right to do as you please, we’ve got a right to do as we please. It works both ways. You’ve got us down now. That’s your business, as you say. But your business depends on our good will. You maybe don’t notice that now, but along next summer, you’ll likely notice it.”

    The upshot of the story is Loftus sells the wheat for cost.

  • Great example Kathryn. The invisible hand forces collaboration when both are looking out for their own “self-interested” pursuits (I appreciated your quote above with a distinction between “selfish” and “self-interested”.) Fascinating topic, maybe we can get Angus to write a follow up article to this since it sounds like he knows a lot about economic theory!

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