The Myth of Market Karma – Part 1. The esoteric philosophy of ‘bad’ Peter Saunders

Does the Centre for Independent Studies’ Peter Saunders want you to believe something he thinks isn’t true?

Peter Saunders says that "we should endeavour to make the meritocratic principle work". At the same time, however, he argues that we should roll back government involvement in the economy and increase the scope of the private sector. Does Saunders really believe that markets identify and reward merit? Is the work of nurses, child care workers and stay at home mothers really so much less worthwhile than the work of bank executives and people who market cigarettes to the third world?

Money, merit and Merton

When a society becomes so productive that it comes close to abolishing absolute poverty, the link between consumption and well being shifts. Almost everyone begins to pursue goods for the same reasons the rich always have — to express themselves, to signal status and to influence how others perceive them. Since almost everybody is guaranteed enough food, warmth and shelter to protect themselves from death and disease, the struggle to increase consumption is driven by what goods mean. In a post-scarcity society well being becomes more about people’s relationships with each other and less about their relationships with things.

The post-scarcity society is achieved by creating an economy where people cooperate with others whose interests and values they often don’t share and whose identities are concealed — mostly by the complexity of the production and distribution process. In a 1938 paper, American sociologist Robert Merton wrote that:

Money is particularly well adapted to become a symbol of prestige. As Simmel emphasized, money is highly abstract and impersonal. However acquired, fraudulently or institutionally, it can be used to purchase the same goods and services. The anonymity of an urban society, in conjunction with these peculiarities of money, permits wealth, the sources of which may be unknown to the community in which the plutocrat lives or, if known, to become purified in the course of time, to serve as a symbol of high status.

This shift in the consumption/well being nexus leads to a shift in the politics of wealth and poverty. If a society where symbols of status can be bought on the market, struggles over the distribution of wealth and income are, to a large extent, struggles over the distribution of recognition and esteem. When a society denies an individual or group a significant share of its resources, many people will interpret this as a denial of respect — the more you are given or can get, the more you matter. This can lead to political demands for government intervention in the market as lobby groups campaign to receive ‘just prices’ or forced redistributions through the tax system.

There have been four political responses to these demands — ‘Market Karma’, ‘Social Justice’. ‘Lucky Liberalism’ and ‘Market Quietism’. These responses are distinguished by the answers they give to two questions, one normative and the other empirical:

• Normative: Whether the distribution of goods and services traded on the market ought to reflect merit (what people deserve) or whether it ought to promote efficiency.
• Empirical: Whether a free market’s distribution of goods and services will end up mirroring the distribution of merit.

Market Karma – promoting meritocracy with markets

Advocates of Market Karma agree with disgruntled citizens who complain that material goods are not being distributed according to merit. They respond to this dissatisfaction by arguing that while markets distribute rewards according to merit, the welfare state does not. The solution is obvious — more market and less government.

Because there’s no authority in charge of distribution, there is no need to reach consensus on the definition of merit. As long as people agree that markets distribute goods according to merit, they can be free disagree about what merit is or how markets really work. Market Karma thrives on mystery and obscurity.

Social Justice – establishing meritocracy by overturning market distributions

Social Justice advocates do not accept that the market’s distribution of resources is a reflection of merit but they do believe that merit is the appropriate principle to use. In principle Social Justice advocates support demands for ‘just prices’ and redistribution. The problems arise in putting the principle into practice. How should merit be defined? Is it something objective or do we need to rely on individual subjective valuations? Do we reward results or do we reward effort? How do we compare the value of things like child rearing, prostitution, art and sport without provoking more intractable conflicts than the one we set out to resolve?

Lucky Liberalism – meritocracy as a bonus

Lucky Liberals evaluate markets according to how efficiently they coordinate the production and distribution of goods and services. But when pressed on the issue of merit they will agree with Ludwig von Mises’ claim that under capitalism "everybody’s station in life depends on his own doing":

The much talked about sternness of capitalism consists in the fact that it handles everybody according to his contribution to the well-being of his fellow men. The way of the principle, to each according to his accomplishments, does not allow any excuse for personal shortcomings.

Lucky Liberals have a number of explanations for why markets reward merit. The first is theological — God deliberately created a world where virtue would lead to material abundance. If society is run according to God’s will (ie under markets rather than communism, social democracy or Islamic totalitarianism) then merit will be rewarded and material prosperity will be assured. The second explanation is secular — our ideas of merit have evolved to mirror what markets reward, contributions to the well being of others.

Market Quietism – efficiency without social justice

Market Quietism acknowledges that markets do not systematically reward merit. But unlike advocates of the Social Justice position Market Quietists do not want to impose ‘just prices’ or substitute state planning for market processes.

While this position is most often associated with classical liberalism there is also an egalitarian argument for Market Quietism. This hinges on Hayek analysis of how markets work. According to philosopher Elizabeth Anderson:

Hayek’s deepest economic insight was that the basic function of free market prices is informational. Free market prices send signals to producers as to where their products are most in demand (and to consumers as to the opportunity costs of their options). They reflect the sum total of the inherently dispersed information about the supply and demand of millions of distinct individuals for each product. Free market prices give us our only access to this information, and then only in aggregate form. This is why centralized economic planning is doomed to failure: there is no way to collect individualized supply and demand information in a single mind or planning agency, to use as a basis for setting prices. Free markets alone can effectively respond to this information.

Egalitarian philosopher John Rawls asked us to imagine choosing principles of justice from behind a ‘veil of ignorance‘. Behind the veil we don’t know whether we will be born into a wealthy family or a poor one. We don’t know whether we will be born with a disability or some extraordinary physical or mental ability. We don’t know what race or gender we will be.

Under such conditions would it make sense to choose distributive principles which crippled the economy and made everybody poor? Rawls argued that inequality was justified if it improved the position of the least well-off. If Hayek is right about how markets work then Rawlsian egalitarians would have a reason for accepting at least some level of market generated inequality.

Egalitarian Market Quietists argue that we need to sever the mental connection we make between wealth and merit. Riches should be their own reward — they do not need to supplemented by status rewards.

Not everything worth having should be distributed through markets. Basic goods such as health care and education can be provided to consumers outside the market. These can be paid for by government but will not necessarily provided by government (governments can promote competition between providers). Status rewards can flow from a variety of institutions including academic, professional, sporting and artistic bodies. In a pluralistic society a best selling novelist succeeds in a different way from an award winning novelist.

For egalitarian Market Quietists, people’s everyday judgments of moral worth could only be improved by abandoning the myth of karmic markets.

What does Peter Saunders say?

Peter Saunders has argued that " in order for any society to work and function with stability, it has to have a clear sense of how it justifies its arrangements to those who live in it." For Saunders the only distributive principle with enough public support is the principle of reward according to merit. After considering the results of a British survey which showed strong support for the merit principle he told his audience:

I challenge you to find another moral principle in the fragmented, pluralistic, modern society that will get an assent from nine out of ten people. Meritocracy does. In view of this, we should endeavour to make the meritocratic principle work.

As a number of readers point out, I’m not able to read Peter Saunders’ mind. All I can do is offer an interpretation which attempts to make sense of the things he has written and said. What follows is my own interpretation.

1. Merit is a moral criteria. In his 1999 Bert Kelly Lecture Saunders defined meritocracy as "just reward for hard work and talent" (my italics). He argues that meritocracy rewards people according to the social usefulness of their contributions. Merit cannot be just a combination of talent and hard work. If it was then talented and hard working terrorists, serial killers, rapists and torturers would be entitled to the same rewards as talented and hard working firefighters, farmers and doctors. In another paper Saunders defined merit as giving people what they deserve — "the principle of just deserts holds that rewards should be allocated to those who are morally deserving according to some previously agreed set of criteria of approved and desired behaviour."

When Saunders offers the principle of merit as a justification of society’s distribution of wealth and income he is clearly offering it to the public as a moral justification. He argues that neither egalitarian or liberal principles will work because they don’t satisfy the public’s demand that rewards should go to those who deserve them.

2. Markets reward people according to merit. It is difficult to find any passage where Saunders says this explicitly. But unless you make this inference it is difficult to make sense of his arguments for expanding the scope of the market at the expense of the public sector. At the very least this implies the claim that markets are more meritocratic than the public sector — and not just the public sector we have now, but any public sector institutions we could realistically hope to create. When he says that "we should endeavour to make the meritocratic principle work" and then argues for public sector retrenchment in health, education and social security it’s hard to draw any other conclusion.

In a 1997 academic paper ‘Social Mobility in Britain: An Empirical Evaluation of Two Competing Explanations’ Saunders claimed to have:

conclusively demonstrated that the occupational class system in Britain is more meritocratic than has commonly been assumed, and that initial patterns of social advantage or disadvantage are much less significant than has generally been claimed.

3. Goods should be distributed according to a single principle. In some parts of his work Saunders seems to assume that a society’s distribution of material resources ought to be governed by a single principle. This is the only way it would be possible for different distributive principles to always be in conflict. In a 2004 article for Policy, Saunders argues that the principles of equality, merit, and fair process are logically incompatible. He confines his discussion to the distribution of income but elsewhere argues that governments should reduce taxation and scale back service provision in areas like health care. Under his proposals most citizens would pay for services out of their own market incomes.

To be fair, Saunders position is slightly more complicated than this. Continuing a line of thought explored in his 1986 book Social Theory and the Urban Question Saunders argues that the shift from the ‘socialised mode of consumption’ (goods and services provided by government) to the ‘privatised mode of consumption’ (goods and services provided by the private sector) does not mean an end to government support to those without market incomes. The change would be in the form of this support takes. Where possible, governments would help people to buy what they needed in the market (eg by offering loans). As far as I’m aware, Saunders does not explain whether this help would be provided according to the merit principle or some rival principle such as need.

Are there two messages — one for an elite and one for the public?

Saunders avoids taking an ethical position on merit as a distributive principle. At the same time he says that the public need to be told that our society is a meritocratic one. There are good reasons for doubting that markets are an instrument of meritocratic social justice (more on that in Part 2 of this post). And it’s almost impossible to get people to agree on what constitutes merit. Some people think a true meritocracy would reward stay at home mothers more that people who sell junk food to children. Markets clearly don’t do that. Some people think a meritocracy would reward literary novelists more than those who write formula romances. Markets don’t reliably do that either. It’s not just leftists who question the justice of market distributions.

I suspect that Saunders doesn’t really believe that markets give people what they deserve. In The Mirage of Social Justice Friedrich Hayek argued that:

the manner in which the benefits and burdens are apportioned by the market mechanism would in many instances have to be regarded as very unjust if it were the result of a deliberate allocation to particular people (p64).

Saunders’ response is to say that Hayek "is to be admired for his honesty." He then goes on to explain why honesty is not the best approach. In an article for Policy he wrote:

Even in a diverse and pluralistic culture such as that found in contemporary Australia, we need some common values to bind us together. No society can endure for very long by relying on brute force as the principal instrument for coordinating and motivating its members. Active cooperation and joint endeavour normally requires some degree of social consent, and long-term social stability is unlikely in a society lacking popular legitimacy. Consent and legitimacy may be engineered and manipulated in a number of ways, but in a democratic society it generally requires that citizens recognise that the basic rules governing their relations with each other are fair. This means not only that people need to be convinced that the system of law is just and that the system of politics is honest, but also that they accept that the distribution of material resources is appropriate.

Saunders is making the same argument that neoconservative writer Irving Kristol made in two essays for the Public Interest — ‘Capitalism, Socialism, and Nihilism’ and ‘When Virtue Loses all her Loveliness’. Kristol warned that unless Americans believed that their society was just the result would be "’alienation’ and anomie, and a melting away of established principles of authority." Kristol argued that:

…can men live in a free society if they have no reason to believe it is also a just society? I do not think so. My reading of history is that, in the same way as men cannot for long tolerate a sense of spiritual meaninglessness in their individual lives, so they cannot for long accept a society in which power, privilege, and property are not distributed according to some morally meaningful criteria.

But the problem with Kristol’s argument is the same as the problem with Saunders’. Neither have a plan for how to make the distribution of power, privilege, and property more just. All Saunders can recommend is that the government stop handing out rewards to undeserving poor people and withdraw from service provision.

It seems to me that there are only two conclusions we could draw. 1. Saunders believes in Market Karma — that markets promote a just distribution of goods, or 2. Saunders accepts that markets are not instruments of social justice but believes that we should encourage the public to believe they are. If you think this interpretation is wrong, the comment box is all yours.