By Sagar Chaurasia
The purpose of the book is to understand what kind of incentives will produce the desired result for the stakeholders of the state. The orthodox economic incentives like taxes, subsidies, fines are not enough to understand the market or the state’s nature in terms of the economy. The book contains various experiments and psychological concepts being used to enhance the role of the moral economy in the state. The first two chapter discusses the historical traces of the key concepts like; ’emergence of ‘Homo-Economicus’, or concept of self-interest, which has been long under discussion from Aristotle, to Rousseau, till the contemporary thinkers like Kenneth Arrow, and Albert Hirschman. The discussion further goes on to separability of moral and material interest, where the market is considered as “extra-moral”, and the notion of ‘greed is good’. In the third chapter, the book discusses ‘social interaction theory’, where the author introduces various games, laboratory, and natural experiments, to deduce results using game theory. Through this various concept are brought in like, ‘crowding in’, ‘crowding out’, marginal and categorical, to understand the relationship of incentive and social preferences. In the fourth chapter, the author discusses the role of ‘information as an incentive’ and its three possible side effects. Firstly, it could be a source of provider’s bad motives, secondly, by changing the context it would create ‘moral disengagement’, and thirdly, it could in anyway compromise autonomy. In the fifth chapter, the author sheds light on how civic preferences are affected by incentives, and how it creates an ‘ethical crowding out problem’. He mentions that our social interactions are affected by our economic environment. Through causality, the author wants to link market and ‘civic liberal culture’, arguing that there exists a relationship between ‘The culture variability in cooperation and punishment’, and the market forces. The sixth chapter discusses the role of policymakers, who are forced to deal with a second-best option, as they face the problem of mechanism design. The author argues that the market creates collateral damage to the culture, hurting the norms which support exchanges and values of the citizens, which are essential for ‘Good Governance’. In the final chapter, the author conveys a message through a narrative of Athens, where rich individuals set to look good, to motivate the crowd for material interest and “constitutive reasoning”, but in contemporary times, they will lose their ethical and social morals.
Insights from “The Moral Economy”
The central theme of the book ‘Moral Economy’ is that we often reject the economic benefits and focus on more humane elements of life. The book initially gives an archeological account in search of the construction of ‘Homo-Economicus’ and constitution for Knave. It discusses that the fundamental nature of ‘Homo-Economicus’ which is self-interest, and utility maximising nature, often taken as an assumption in the economic modelling. The notions like compassion, empathy, piety are often left out or are compromised when a nation’s economic development or business is considered. Greed is considered as the emotion to drive the economy, which the author Samuel Bowles totally rejects. He argues that such self-interest emotions undermine and suppresses the moral instincts of human nature, especially in contemporary times where greed has become an intrinsic part of the power structure.
The following arguments are highlighted from the book which is used by the author for narrating the historical evidence of the emergence of self-interest and ‘Homo-economicus’. The Aristotle’s Legislature, in accordance with ethics, would argue that “laws should not be made to restrain evil but to cultivate good, but this is a test of the good constitution”. Aristotle was keen on how we govern our society, which ultimately impacts what type of citizen we become. Aristotle says that the chief task of the legislature is to design a task that would inculcate good habits in the citizens. “It is the test of the constitution, to produce a citizenry to with a civic value”. The author then moves on to discuss Niccolò Machiavelli’s Prince, as the first break in ‘morality’ came with him. Machiavelli’s answers the question, “How can you treat people who don’t share the same morality as others?” As the author mentions, In Machiavelli’s book the ‘discourses’, it states that “all men are wicked, and hunger makes them industrious, and laws make them good”. Thus, in designing a constitution, we should think of natural and ordinary humorous. This concept was also continued, Dr. Bernard Mandeville, which he wrote in a book named ‘The fable of the bees’, stating that the bees were selfish, occupied by leisure, and over-consuming in nature. Those inferences were wrong and different from what we know now about bees as highly cooperative in nature. He considered bees as an individual bee, the worst of all the multitude of all bees did something for the common good, ‘their crimes conspired to make them great’. The conclusion is that there are good outcomes from ordinary motives, that is ‘private vice and public benefit’. The same idea was also proposed by Machiavelli, stating that in governing well, our capacity is different from other animals and we can make laws to harness from ordinary people to do good for the society. Then Hobbes’s Leviathan argued that “by taking self-interest and harnessing the industry of average and turning into public good”. Adam Smith continued self-interest and introduces the concept of the invisible hand, where he identified that good could emerge from the cumulative amoral behaviour of the system, and the invisible hand would guide to do so. This idea of self-interest was accepted in the 1780s because ‘averse’ or greed was started to be accepted in the society, which was earlier considered as seven deadly sins. And thus, the author believes that self-interest became the alternative to zealotry. With this the notion of separability of Homo-sapiens, a moral being and ‘Homo-Economicus’, the selfish and utility maximising agent.
In the middle part of the book, the author aims to prove his hypothesis that, ‘morals and incentives are inseparable’, for which he conducts various experiments. The hypothesis stretches further by saying that material incentives like fines, does not create any positive or negative impact on its moral behaviour. Further in cases of incentives as a grant, the moral part of the work is replaced by a financial asset, which individuals feel they could trade-off. To elaborate this, the author uses a case study of a Boston Fire departmentis used where there exists a policy of unrestricted amount of sick leaves which are given on days near weekends to cure the flu. A shift in the policy by limiting the allowance to 15 days on leave, and putting a price to their discipline, resulted in a double number of leaves taken by the fighters. The author argues that the moral sentiments of the firefighter were hurt as they take honour in taking the job. The author concludes that when financial incentives are added for selfless behaviour resulting in a reduction of selflessness. The worker rather chooses to give up their duty, as think that it something that they could buy it off. This problem of the labor market which the author names it as ‘crowding out social preferences’. The author generalises such behaviour in the realm of markets. Markets are the result of selfish nature, which through cause and effect could also be marketed producing selfish nature. And thus, the author suggests that this way market kills the moral sentiments attached to the work. A more personal case study which the author uses is of his children to pay for the household work, resulting in no household chores. In the above case, it is no more a moral obligation and the children feel that the work could be traded off with a financial loss. A similar case of ‘Day Care Centre of Haifa’in which the number of parents picking up children late from the center increased after finning them. In Ireland, the taxes on the plastic bags worked in favor of the state, as the policy was framed as a moral obligation.
All the above experiments mentioned which are present in the book, have a little variation and the unit of analysis is either money or information. All experiments and cases challenged the notion that the individuals are only self-driven, in which one subject is given the money by another subject, which he can accept or decline. The author uses the concept of game theory, to explain prisoner’s dilemma in the cases used to support his hypothesis, in which acting in a self-interested manner would lead you and the other individual to lesser preferred choice. This is used to introduced to showcase the importance of cooperation in situations. However, Adam Smith argued that in case of markets, competitions would serve a better alternative. Adam Smith’s book on morality is often taken as separately with his most famous book ‘The Wealth of the Nation’. The author then raises the issue of separability where of material interests with moral obligations.
The author then investigates the problem of information as an incentive and establishing the systems which are more distributed. In the experiment of trust game, the author discusses reciprocity in which the more investor gives to the trustee, more the trustee will give back. The general line of thought for an Economist is on ‘preferences’ or ‘choices’, but for a psychologist, it is on analysing different ‘situations.’ Hence the author argues that incentives will according to the situations that the individual is facing. And thus, the author focuses on what we value in the decision making, rather than how we decide, which was the traditional line of thinking. He claims that the incentives do not always backfire but are relevant in the situations we use them.
To tackle this problem, the author offers the restructuring of mechanism design. The laws were framed upon the Ideas of the Marketplace, incentives, and regulations, what economist describe ‘Mechanism Design’. In mechanism design, there is a way to formulate incentives, so that they look fair, and should not look like it is serving the greed of the person who is designing the incentive.
The author after looking into historical evidence through literature and then empirical evidence through experiments, in the last part of the book, wants to discuss the dilemma of the legislature, before proposing a ‘mandate for Aristotle legislature’. From the experiments, the author concludes that the relationship between material incentive and behavioral results is not linear. In order to counter the flaws of the assumptions taken by the policy makers for centuries, the author proposes a restructuring of mechanism design is discussed in the sixth chapter. The mechanism design should be proposed in a manner that incentives and social obligations can be incorporated together. And hence, according to the author, the ‘mandate for a legislature’ would be to design a policy were social preferences does not get crowded out. The author argues that legislative is not fixing the primary problem, just by fixing in land tenures or labor market it is destroying the community norms.
A Critical analysis of “The Moral Economy”
The book requires a little knowledge of economics as it does not contain any mathematical equation and few diagrams to suggest things, rather it is much more based on empirical philosophical arguments. The book is a descriptive psychological analysis which uses an inductive reasoning by a generalisation of the results from the experiments conducted to reach to wider audiences. Sometimes, the generalisation may leave out some other important parameters to be considered in concluding the results of the experiments. Due to this, a result from an experiment conducted in Boston may result significantly different in Japan, due to the mindset of working class, or state ideology, or geographical and climatic difference, or rule of law. Also, there is no comprehensive study and exhaustive list of experiments to make a reliable judgment for such generalised behavioural aspects of the humanity. The book also lacks direct practical implementation for the policy maker as it serve as a source of inspiration for an academician to understand a moral viewpoint in decision making as a stakeholder. It is thus, more of an academic paper than real practical solutions to provide significance in the real contemporary world. The author has used new experimental setups and extended its definition to the global economic system. Another critical claim could be the time frame in which the experiments where considered, for example, maybe after a year the number of leaves taken by Boston fire department could decrease. There were no continuous observations made during a time interval for all the experiments, it was much more like a snapshot of a time, which could deviate from the previous observations. All economist wants to test their experiments beyond the boundaries of the experimental lab as they are conducted in a closed controlled environment, before making any conclusion. The experiments are often repetitive and in a closed environment the incentives are evident and hence it is easier to articulate behavioral responses and derive conclusions from it, but it may differ in implementation practically. In some experiments, the subjects under consideration could be invalid, like a two-year baby is
under experimental observation to check when does he reaches out for the toy. As the brain of a two-year-old is yet to form, so considering him as subject to analysis is vague.
A new toolkit is being offered by the ‘Aristotle’s legislature’ for the economist, which offers generosity, reciprocity as parameters to be considered, which accounts for the goodwill of the nation as the author claim in the final chapter. But often, when implementing practically the experiments are no longer relevant and focus shifts to opinion polls, survey, facts, and quantitative assessment, which raises serious questions on the legitimacy of Bowles’s whole experimental legitimacy. Further, it is difficult to classify the cases as crowding in or crowding out. Also, in accounting for the three proposed fall outs where ‘information is incentive’, there could be problems when implementing practically, like; the legitimacy of the source of information, the quantity of information to gather by the state for the policymaker. Also, major companies which are profit-making entities also contribute in cooperate social responsibility, as a goodwill. Such policies are in place where there are alternatives to contribute socially, even for a solely self-interested entity.
The author seems to be inclined towards a socialist model for the economy, as he uses the basic categories of interactions, i.e. ‘Nature’, ‘social relations and institutions’ and ‘Humans’, argues that they are all interconnected, which was also the fundamental basis for theory of Marxism. The ontology for the theory of Marxism is the way the world interacts i.e. ‘causality’, which is also used by the author in his work. A comparison could be made of the work with Immanuel Kant’s ‘The critique of pure reason’, which argues that ‘others should not be treated only as means to ends’, where he discusses the nature of freedom and reason.
The title of the book justifies the work presented in the book. The book is a well-written piece which triggers thinking on new lines. The book has challenged the underlying assumption of self-interest in various fields with empirical evidence suggesting otherwise. The experiments cover tribal communities, infants, teenagers, adults in 17 different scenarios to offer changes in international trade, public economics, labor economics, with fundamental micro and macroeconomic theory. The author wants to convey one clear message, that is, “Incentivise wisely”, it by altering the modelling the human behaviour. The author’s approach was more like an evolutionary psychologist. The narrative built by the author through experiments in order to reach to the wider audience with the varied background is comprehensive. The author wants to convey the role of ‘Ethics’ and ‘Morals’ for a policymaker, businessman and other stakeholders of the state, challenging the monolithic notion of ‘Homo-economicus’. The author mentions that ‘Individual will reject incentives if they are treated as commodities’. The experiments used as examples to justify the claims are very well presented in a descriptive manner. The author ‘Samuel Bowles’ as Behavioural Economist have argued that the markets cannot be relied on to create a greater good, which has challenged the long-lasting notion that ‘greed is good’. The work is a necessary intervention and provides an alternative way to think about incentives. It could be further mathematically formulated and theorise in various context of political economy.