The Moral Economy: Why Good Incentives Are No Substitute for Good Citizens

By Samuel Bowles

Among economists, jurists, and the policy makers it is widely held today that citizens, employees, business partners, or potential criminals—are entirely self-interested and amoral.

It may seem odd that nobody really believes that people are entirely amoral and self-interested.

The proliferation of amoral self-interest might be one of the consequences of living in the kind of society that economists idealized.

Behavioral experiments have provided hard evidence that ethical and other-regarding motives are common in virtually all human populations.

“Putting a price on every human activity erodes certain moral and civic goods worth caring about.”

People are not nearly as farsighted, calculating, and consistent in their decision making as economists have generally assumed. Instead, we are biased toward the status quo

Economists, who have placed the act of choosing at the center of all human activity, have now discovered that people are not very good choosers.

In the pages that follow I am less concerned with how we make decisions than with what we value when we make decisions.

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In the Middle Ages, avarice was considered to be among the most mortal of the seven deadly sins. So it is surprising that self-interest would eventually be accepted as a respectable motive.

Since the late eighteenth century, economists, political theorists, and constitutional thinkers have taken Homo economicus as their working assumption about behavior.

Good institutions displaced good citizens as the sine qua non of good government. In the economy, prices would do the work of morals.

It still constitutes the holy grail motivating policy design.

The job of the wise policy maker is ordering the right laws to induce citizens to act as if they were good.

Writers of introductory economics textbooks struggle to find empirical examples of even a single market that approximates the model on which the theorem is based.

Getting self-regarding people to act as if they cared about the effects of their actions on others has so far eluded jurists and policy makers.

Except on the whiteboards of economics classrooms, people try to avoid dealing with Homo economicus. Employers prefer to hire workers with a strong work ethic.

Except on the whiteboard, everyone knows that “the contract itself is not sufficient.” andshakes matter; and where they do not, the economy underperforms.

Morals must sometimes do the work of prices, rather than the other way around.

Ethical motives have always been essential to a well-governed society and are likely to be even more so in the future.

The policy tool kit based on the self-interest maxim, designed as it was for knaves and the wicked, may be part of the problem.

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Natural observation and experimental data indicate that in most populations, few individuals are consistently self-interested, and moral and other-regarding motives are common.

It appears, then, that J. S. Mill took the field of political economy in the wrong direction when he narrowed its subject to the study of the individual “solely as a being who desires to possess wealth.”

Motives such as reciprocity, generosity, and trust are common.

Machiavelli sought to design policies that would induce the self-interested to act as if they were “good.” Hume wanted to harness the “insatiable avarice” of the citizen-knave in the interests of the public good. This remains an excellent idea.

But a constitution for knaves may produce knaves, and may cause the good to act as if they were “wicked.”

Goodwill may be eroded by policies that seem well conceived for a world in which feelings of trust and mutual concern do not exist or do not matter.

Experiments show that policies premised on the belief that citizens or employees are entirely self-interested often induce people to act exactly that way. The challenge is to understand why.

The extensive use of incentives may adversely affect the evolution of civic preferences in the long run.

But perhaps the admirable civic cultures of many of the longest-standing capitalist economies owe more to the liberal social order in which these economies are embedded than to the extensive role of markets and incentives

By a “liberal society,” I mean one characterized by extensive reliance on markets to allocate economic goods and services, formal equality of political rights, the rule of law, public tolerance and few barriers to occupational and geographic mobility based on race, religion, or other accidents of birth.

Some examples of liberal societies in the experimental studies I will introduce are Switzerland, Denmark, Australia, the United States, and the United Kingdom.

Examples of societies that I do not term liberal (lacking at least one of the above attributes) are Saudi Arabia, Russia, Ukraine, and Oman.

How people interact in markets and other economic institutions shapes social norms and preferences, and these are then generalized to noneconomic domains of life.

Incentives may also alter the process by which people come to acquire new tastes, habits, ethical commitments, and other motivations.

Economies structured by differing incentives are likely to produce people with differing preferences.