A B S T R AC T M A R K E T S V E R S U S N OX I O U S M A R K E T S
What is wrong with markets in everything? What is it about the nature of particular exchanges that concerns us, to the point that markets in some goods appear to be clearly undesirable? How should our social policies respond to such markets? Where and for what reasons is it appropriate to regulate a market, and when should we seek to block it?
These are the diffi cult but important questions that this chapter attempts to answer.
Several brief clarifi cations about my scope and aims here. First, as is evident from the discussion thus far, my project does not involve an overall assessment of “the market system.” 1 Markets allow people to accomplish many important social and individual tasks under modern conditions of interdependence and diversity. The point of my inquiry is not to raise general questions about the market system or about markets in the abstract. Rather, I am concerned here with the differing charac-teristics of very particular market exchanges: in human body parts, child labor, toxic waste, sex, and life-saving medicines. Markets in these goods provoke reservations even among those who are otherwise great enthu-siasts about the market system.
Second, I put aside questions concerning the rationing of essentials in cases of extreme scarcity, “tragic choices,” as they are referred to in the legal literature. 2 These are cases in which no amount of money or effort will produce enough of urgently needed goods. Market allocations in tragic choice cases raise distinct considerations from the examples considered here, as such cases do for all the alternative systems of allo-cation, including those using lottery, age, or merit.
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Let me recap the discussion so far. Chapter 1 focused on the domi-nant framework of contemporary economics that supports market interventions only where markets fail to be effi cient. 3 Proponents of this approach can be divided between those who believe that perfectly effi -cient markets are “moral-free zones” to which morality simply does not apply, 4 and those who believe that it is simply not the place of econo-mists to evaluate the morality of differing markets. But when particular markets fail, this approach does not tend to support the elimination of those markets. Indeed economic theory is inherently imperialistic about the scope of the market; as we have seen, the solution to market failure is often taken to consist in the enlargement of the scope of the market.
(Consider the introduction of markets in pollution to incorporate pol-lution’s costs to third parties.) There are no theoretically set limits for the scope of the market. In addition markets and the corresponding idea of market failures are everywhere conceived of in the same terms. This stands in sharp contrast to the approach of the classical political economists that I explored in chapter 2.
Chapter 3 examined important contemporary approaches to the limits of the market. Drawing on the work of Ronald Dworkin, I criti-cally examined the view that markets have a necessary moral role to play in egalitarian theory because markets make each of us responsible for the allocation of effort and resources in our own lives, while at the same time ensuring that the benefi ts that we derive from our choices depend on how important our effort and resources are to others. As we saw, Dworkin’s theory gives us no reason in principle to set limits to the scope of the market with respect to goods and services, except perhaps for paternalistic considerations.
I also explored the prevalent general egalitarian approach that, although critical of the economist’s exclusive focus on market effi -ciency and market failure, accepts the legitimacy of relying on markets in most domains. Proponents would use markets to produce effi cient outcomes and then support ex post transfers of income to achieve their desired egalitarian distribution. 5 Like contemporary economics, its proponents tend to treat most markets as the same: markets in soy-beans are not fundamentally different from markets in body parts. The basic default strategy employed for dealing with market problems is to redistribute income and not to block particular markets or to redis-tribute specifi c goods in kind. Many proponents of this view also
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appeal to antipaternalistic considerations for preferring cash to in-kind transfers.
I also examined specifi c egalitarian approaches, which ground a dis-tinction in markets—between those that are acceptable and those that are not—based on the meaning of the goods being traded . The idea here is that distribution should track our conventional or best understand-ings of the nature of the goods we seek to distribute. As we saw, these authors argue that markets corrupt the nature of certain goods, trading in things that money should not buy.
The theories considered in chapter 1 and chapter 3 have important insights on which I will draw: market failures (including externalities), distributional equality, and the importance of access to specifi c goods are important considerations in assessing markets. 6 Yet my underlying theory about the limits of markets also differs. I argue for a more nuanced view of the idea of market failure, one that takes into account how markets shape our relationships with others in ways that goes beyond the idea of unabsorbed economic costs. A market exchange based in desperation, humiliation, or begging or whose terms of remediation involve bondage or servitude is not an exchange between equals. On my view, lurking behind many, if not all, noxious markets are problems relating to the standing of the parties before, during, and after the process of exchange.
I will also argue in this chapter that some markets are noxious and need to be blocked or severely constrained if the parties are to be equals in a particular sense, as citizens in a democracy. In making this argument I draw on the writings of Adam Smith and the other classical political economists discussed in chapter 2. Recall that these thinkers recognized that markets require certain background conditions—specifi cation of and enforcement of entitlements and property rights—in order to sup-port relations of freedom and equality. The markets of the classical polit-ical economists were populated not by the abstract individuals with given wants that tend to characterize contemporary economic theory, but by landless peasants and wasteful landlords and by impoverished workers who stood in asymmetrical power relations with their employers. More-over agents’ preferences, capacities, and relationships were understood to be shaped by the structure and nature of particular markets. Like these theorists, the approach to markets I defend recognizes market heteroge-neity and stresses the need to consider other values besides effi ciency and distributional equality narrowly conceived. But, as I argued in chapter 3,
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I think we should reject the main contemporary alternative arguments for limiting markets based on the social meaning of goods. As I see it, a major problem with noxious markets is not that they represent inferior ways of valuing goods (as those who link the limits of markets to social meanings claim) but that they undermine the conditions that people need if they are to relate as equals. At any rate, so I shall argue.
N OX I O U S M A R K E T S : T H E B A S I C PA R A M E T E R S
I begin with a characterization of four parameters in terms of which we can differentiate the markets that people fi nd especially objectionable from other types of markets. Several of these parameters are internal to the perspective of economics in that scoring high on them will often undermine effi ciency. However, there are also political and moral ratio-nales for limiting noxious markets. That is why the addition of more markets is not always the appropriate response to a noxious market. In some cases our goal should be to curtail a particular noxious market, not to make it work better. 7
The fi rst two parameters characterize the consequences of particular markets.
1. Some markets produce extremely harmful outcomes . That is, the operation of some markets leads to outcomes that are deleterious, either for the participants themselves or for third parties. 8 Consider market exchanges that lead to the depletion of the natural resource base of a country or to the fueling of a genocidal civil war. Or consider a stock market transaction that wipes out a person’s resources.
Of course, many markets have harmful outcomes without eliciting our revulsion; we think that the ups and downs of prices come with the territory. But some market outcomes are so negative, so extremely harmful that they almost always evoke a strong reaction. How harmful is that? Following up on a suggestion by Ravi Kanbur, we might consider as a natural starting point for answering this question a market whose operation leaves a person destitute. 9 For example, a grain market whose operation leaves some people starving because they cannot afford the price at which grain is set through supply and demand is bound to make us feel uncomfortable.
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Yet markets can also be extremely harmful to individuals in ways that go beyond destitution. Amartya Sen usefully distinguishes between two types of interests that people have: welfare interests concern a person’s overall good, and agency interests concern a person’s ability to partici-pate in deciding matters that bear on that good. 10 These interests are interdependent, but they are distinct. (A benign dictator, for example, could meet all my basic welfare interests.) We can defi ne a set of basic interests for people, interests in minimum levels of well-being and agency, and defi ne extremely harmful market outcomes as outcomes that leave these basic interests unsatisfi ed. The idea of basic interests is meant to capture the idea that there are universal features of an ade-quate and minimally decent human life, a “line beneath which no one is to be allowed to sink.” 11
2. In addition to leading to extreme individual harms, certain mar-kets can also be extremely harmful for society . The operation of these markets can undermine the social framework needed for people to interact as equals , as individuals with equal standing. There are, of course, running disagreements among philosophers concerning the meaning of “interact as equals,” as well as the scope of this ideal. I take the content of this ideal to be given by the preconditions necessary for individuals to make claims on one another and interact without having to beg or to push others around. Markets help enable this ideal, as the basis of market claims is reciprocal self-interest of the parties. 12 But they can also undermine it. Consider markets that operate to undermine the capacities that a person needs to claim her rights or to participate in society; this is a problem with child labor markets and bonded labor, cases I discuss in the third part of this book. Or consider that particular markets may condition people to be docile or servile, shape them into passive accepters of a status quo. Whereas contemporary economics sees the capacities and preferences of agents in a market as givens, particular markets—think of media, education, and caregiving—shape us. More-over they may shape us in ways that are in tension with a society of equals.
A special case is a market that is harmful for the standing of the parties as equal citizens in a democracy. This case ratchets up from the more minimal notion of equal standing: it has to do with the equality of individuals as co-deliberants and co-participants in making laws that apply to themselves. This kind of equality presupposes additional
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constraints on markets and their scope. Recall James Tobin: “Any good second year graduate student in economics could write a short exami-nation paper proving that voluntary transactions in votes would increase the welfare of the sellers as well as the buyers.” 13 Nevertheless the legiti-macy of the democratic process depends on the prohibition of such transactions. I will discuss this case later in this chapter.
The next two parameters characterize the sources of particular mar-kets, the underlying condition of the market agents:
3. Some markets are characterized by very weak or highly asymmetric knowledge and agency on the part of market participants. The Pareto effi ciency results assume that agents are fully aware of the consequences of their actions and have complete information about the goods exchanged. 14 But, as is widely noted by economists and others, in most circumstances these assumptions do not hold. Agency failures can occur because some of the direct participants lack important knowledge or because the market has serious indirect effects on people who are not involved in the market transactions. 15 If one or both of the parties to a contract are mistaken about the material facts or about the future conse-quences of their contract, we cannot assume that the exchange is a Pareto improvement.
All real markets, of course, involve imperfect information. But in some cases this imperfect information is apt to produce extremely harmful consequences. This may be most likely in cases where is a sig-nifi cant time lag between the initiation and the completion of a transac-tion. 16 It is hard to predict one’s future preferences. Consider the case of a woman selling her ability to have a child. In this case we might suspect that a woman who has never been pregnant cannot really know the con-sequences of selling the right to the child she bears.
Of course the fact that a contract has potential risks for an agent does not mean that the contract should not bind the agent, or else most con-tracting would fail. Nevertheless information failures are relevant to our assessment of particular markets in the face of harmful outcomes; in particular such failures serve to block justifi cations of a market transac-tion that appeal simply to the fact that it was chosen. Thus if agency is weak in surrogacy contracts, and a surrogate is now devastated by the thought of giving up the child she has borne, we will be less likely to think that we can justify enforcement of the contract simply on the basis that there was an agreement.
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Although the majority of troubling markets characterized by weak agency involve extremely harmful outcomes, it is possible to be con-cerned by such markets even in the absence of harms. In this category would fall product markets that target young children; markets involving the production, purchase, and dissemination of information that fail to present relevant alternative points of view about a pressing political issue; and markets whose products are based on deception, even when there is no serious harm. 17
Agency problems also arise in markets in which one of the affected parties is not directly involved in the transaction but depends on others to transact for her. In such cases we cannot be certain that the party herself actually benefi ts from the transaction. In the majority of cases of child labor, for example, parents are transacting on behalf of the children whose time and labor are traded. Many forms of child labor give little or no benefi t to the working child and in some cases signifi cantly interfere with the child’s ability to grow up into a healthy functioning adult. 18 Other markets in which some of the affected parties are not directly involved as participants include markets in a nation’s important scarce natural resources (such as timber in a rain forest), which can affect subsequent generations and others around the globe.
4. Some markets refl ect the underlying extreme vulnerabilities of one of the transacting parties. Rousseau wrote that no citizen should “be wealthy enough to buy another, and none poor enough to be forced to sell himself.” 19 When people come to the market with widely varying resources or widely different capacities to understand the terms of their transactions, they are unequally vulnerable to one another. In such cir-cumstances the weaker party is at risk of being exploited. For example, when a desperately poor person agrees to part with an asset at a fi re sale price, even if the exchange improves his well-being we are rightly con-cerned with the fact that his circumstances made him willing to accept an offer for his asset that no one with a decent alternative would ever accept. When a person enters a contract from a position of extreme vul-nerability he is likely to agree to almost any terms that are offered. Other examples of markets that exploit the vulnerability of transacting agents include markets in urgently needed goods where there is only a small set of suppliers and markets where the participants have highly unequal needs for the goods being exchanged. 20
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Some markets not only refl ect the different and unequal underlying positions of market agents but may also exacerbate them by the way they operate. For example, in Bangladesh a recent famine arose when the price of the main food, rice, rose very rapidly and became too expensive for the poor to purchase. By contrast, rich households were insulated from the risks of rising prices because they generally receive rice from their tenants as payment for the use of land so that they have rice for their own needs and surplus to sell. 21
So we have two dimensions regarding the source of a market and two dimensions regarding the consequences of a market that can be used to think about the acceptability of particular markets (see Table 1 ).
High scores along one of these dimensions, or several of them together, can make any market appear “noxious” to us. Consider the market in diamonds, whose sale is used to fund brutal civil wars. Many people fi nd such a market abhorrent. On the analysis offered here, the best way to understand our negative reaction to this market has to do with its extremely harmful outcome—prolonging a bloody civil war in which thousands or tens of thousands die, hence the term “ blood diamonds”—and with the weak agency of so many who are affected by the markets that fuel that war. 22 Our discomfort with such markets doesn’t seem to have anything to do with the social meaning of dia-monds and little to do with the underlying income inequality of buyers and sellers.
TABLE 1. What Makes a Market Noxious?
Source: Weak Agency Source: Vulnerability
Inadequate information about the nature of and/or consequences of a market;
others enter the market on one’s behalf
Markets in a desperately needed good with limited suppliers; markets with origins in poverty and destitution; markets whose
Markets in a desperately needed good with limited suppliers; markets with origins in poverty and destitution; markets whose