Free Markets and Social Justice, Cass Sunstein. Oxford University Press, 1997, vi + 405 pages.
(note: this is copyrighted material)
This book is a collection of 14 essays by the legal theorist Cass Sunstein that
have appeared in various journals (mostly law journals) throughout the 1990s.
Despite the title, these essays are not, for the most part, about distributive
justice and the market, at least as this topic is ordinarily understood.
Instead, they are about a range of issues concerning the market, democracy, and
the proper role of government. Part I, consisting of five essays, concerns
foundational questions about the sources and legitimacy of people's preferences
and values as expressed both in the market and through the political process.
Part II is about nature and value of rights, including free speech rights and
the right to private property. Part III concerns regulation, specifically health
and safety regulation, and many of the defects of the current regulatory regime
in the United States. Overall, Sunstein defends a left-of-center perspective on
these topics, with none of the reflexive suspicion of markets found in other
writers of his general political persuasion.
A theme that runs through many of the essays is that the economic analysis of
law has important limitations and deficiencies both as an analytical tool and as
a basis for a normative evaluation of the market. Markets are typically praised
on the grounds that they efficiently satisfy people's preferences. A corollary
to this view is that there is a role for the democratic state in satisfying
people's preferences when markets fail. Much of Free Markets and Social Justice
is concerned with undermining this sanguine view of markets and the associated
picture of the role of government.
In a number of essays (notably, "Preferences and Politics,"
"Social Norms and Social Roles," and "Endogenous Preferences,
Environmental Law") Sunstein argues that preferences are not fixed, given,
and acontextual but instead are shaped by social roles and norms, past
consumption choices, and legal rules. In short, they are endogenous. A subset of
these preferences are what Sunstein calls ‘adaptive preferences.' These are
preferences that people develop in response to, and as a coping strategy to deal
with, unjust or otherwise undesirable conditions (25-28, 256-58). For example,
women may have adaptive preferences (caused by, e.g., advertising, past
consumption choices) for traditional social roles that entrench inequality
between the sexes (161), and many people may have weak preferences for
environmental quality because of their lack of exposure to clean air, clean
water, and pristine areas (256). A further implication of the endogeneity of
preferences is that any existing allocation of ownership rights to productive
assets, income, etc. serves to reflect, legitimate and reinforce social
understandings about who is entitled to what. A special case of this general
status quo bias is the so-called "endowment effect," whereby the
initial grant of an entitlement of something to someone makes it more valuable
to that person than it would otherwise be (247-56).
According to Sunstein, the endogeneity of preferences has three important
implications: (1) existing institutions cannot be justified by an appeal to the
fact that they satisfy preferences for which those very institutions are
responsible (17, 257). (2) endogeneity undermines the connection between the
satisfaction of these preferences and welfare. Sunstein says, "because
preferences are shifting and endogenous, and because the satisfaction of
existing preferences might lead to unhappy or deprived lives, a democracy that
treats all preferences as fixed will lose important opportunities for welfare
gains." (18) (3) finally, since endogenous preferences are shaped by social
forces outside of individuals' immediate control, they are non-autonomous (19).
A concern for autonomy, then, does not require a "hands off" attitude
toward existing preferences.
What is the larger significance of these implications? (1) attempts to undermine
a fairly simple utilitarian justification for relatively free markets by calling
attention to its apparent circularity. That much seems hard to deny, though
there is something peculiar about discounting preferences because of their
endogeneity. Any stable political or economic system will contain structures or
processes that generate its own support. Presumably, many of the preferences of
people living in the kind of society Sunstein favors would also be endogenous.
To the extent that stability is a good thing, the fact of endogenous preference
formation is a salutary phenomenon.
The second and third implications are simultaneously intended to undermine
preference satisfaction rationales for the market and to justify an activist
role for the state in determining or shaping preferences. In "Social Roles
and Social Norms," Sunstein argues for the latter proposition in some
detail. Existing norms, social roles, and social practices are often obstacles
to human well-being and autonomy (37). Consequently, changing norms will often
be the best way to improve individual and social well-being and to enhance
autonomy. This often requires solving collective action problems that government
is uniquely suited to address. Besides, since the existing legal culture
expresses certain values and norms, government is inevitably involved in shaping
norms. State neutrality about the norms and values by which people live their
lives is therefore a myth.
Though he does not try to settle decisively the question of exactly when
government should intervene and try to (in his phrase) "manage norms,"
he does cite four sorts of cases in which government action seems appropriate
(58-59): (1) Nearly everyone agrees that a change is called for. For example,
almost everyone agrees that it would be better if people felt a responsibility
to clean up after their dogs. Passing a law requiring this behavior can change
the relevant norms. (2) The behavior is done almost entirely because of the
reputational consequences, and most people want the latter to change. (His
example of drug use in this connection does not seem quite right, however, since
many people take drugs not primarily because of the reputational effects but
because they enjoy getting high.) (3) Existing norms are part of an unjust caste
system. Examples of this phenomenon would include many now-defunct norms about
how women and minorities are supposed to behave and be treated. (4) Existing
norms undermine people's autonomy by discouraging them from being exposed to
diverse conceptions of the good and from giving critical scrutiny to their own
conceptions of same. This might justify public funding of the arts and
educational television. All these observations are intended to support
state-sponsored paternalism, though as noted above, he never attempts to delimit
the exact circumstances under which such paternalism is justified.
Sunstein also discusses other phenomena that are intended to undermine a more
libertarian view about the proper role of the state in civil society and to
support a more activist role for government. One is the phenomenon of value
incommensurability. "Incommensurability occurs when the relevant goods
cannot be aligned along a single metric without doing violence to our considered
judgments about how these goods are best characterized" (80). The
explanation for incommensurability is to be found in the fact that people value
things in different ways, where the ways or modes of valuation are defined by
reference to the type of intentional states (e.g., awe, admiration, love,
resentment) people have toward them. This is why people find it inappropriate
and even immoral to talk about the monetary value of, for example, natural
wonders and human organs.
This does not imply that choices cannot or should not be made, but it is
supposed to explain the inappropriateness of markets in these goods. According
to Sunstein, politics is the appropriate realm to take account of
incommensurable values (though not by trying to mimic the market through
cost-benefit analysis). This belief derives from a certain conception of
democracy–what he calls a Madisonian conception. Briefly, Sunstein wants to
reject the idea that democracy is, and should be, like the market in that it is
merely a vehicle by which people register their preferences. On his Madisonian
conception by contrast, the democratic process is deliberative and
transformative. Through a process of public discussion and interaction, citizens
of a democracy clarify and can even change their (incommensurable) values and
come to decisions about how best to realize them–decisions which often or even
usually involve restricting or usurping the realm of the market.
Sunstein also argues that politics is the appropriate realm to express
altruistic values and collective values. The latter are (roughly) values about
the kind of society in which people want to live (22). For example, a social
safety net might be justified by appeal to the fact that most people want to
live in a compassionate society which takes care of those who are unable to take
care of themselves.
Sunstein's analysis suffers from a number of problems. One is that he never
clearly identifies his opponents and their best arguments. His opponents remain
unnamed and their views as he characterizes them seem highly implausible. No
serious thinker believes that people's preferences as expressed in the
marketplace are acontextual and fully autonomous, and it would be a difficult to
make the argument that the best thinkers who support limited government somehow
presuppose this.
A second problem is that he gives insufficient attention to non-market voluntary
institutions as vehicles for incommensurable and/or collective values and as
sources of changes in values ("norm managers"). Civil society includes
much more that the market and its associated structures. There are religious
organizations and a wide range of other voluntary institutions devoted to
promoting certain values and ideals. To make a case for state action as a
vehicle for collective and incommensurable values and as a tool of norm
management, it is necessary to explain why these alternative institutions are
inadequate to the task. At one point he does consider non-state institutions as
norm managers but dismisses them:
[P]eople who are dissatisfied with prevailing norms can vote with their feet,
using the power of "exit" to become members of groups
built on
especially congenial norms. . . . [But] the existence of norm communities is not
a full solution to the problem posed by some
social norms. It can be very costly
to exit from the norm community in which one finds oneself, and the fact that
one has been raised
in that community may make other options seem unthinkable or
horrific even though they might be much better. . . . it might be better
if the
community as a whole [i.e., the state] could do something about those norms.
(40-41)
However, the very difficulties with norm communities that Sunstein calls
attention to are exacerbated when the community is the state (especially at the
national level), and the norms and values at issue are the ones it sustains and
ratifies. For example, if one is dissatisfied with the norms and values sustained and ratified by the contemporary American state (most notably, the now
widespread belief in the appropriateness of government-sponsored paternalism),
the costs of exit are quite high. And if one has been raised in a society in
which the state permeates most aspects of social life, including especially the
schools, one would have to have considerable internal resources--or already
belong to a dissident norm community--to question the values and norms the state
endorses and sustains.
Finally, Sunstein is not sufficiently sensitive to the problems and difficulties
involved in government-sponsored paternalism and attempts to realize
incommensurable and/or collective values. For instance, even assuming that
government officials sincerely want to bring about beneficial norm changes (and
that their desires to do so are not endogenous or even adaptive to their
particular political subculture!), the problems involved in knowing that any of
the four above conditions for state-sponsored norm management holds are
formidable. As Timur Kuran has shown (Kuran 1995), preference falsification is a
widespread phenomenon. Very often people do not publicly reveal their
preferences and values, or they dissemble about them, especially when those
preferences and values are at variance with official (i.e., state-sponsored)
ideology. More generally, Sunstein seems to be overly optimistic about the
capacity and interest of government officials in doing the right thing, however
the latter is defined.
Serious problems also afflict government attempts to realize collective and
incommensurable values. If such values are widely shared, they are likely to be
highly indeterminate and vague. This fact creates an opportunity for special
interests to shape governmental attempts to realize these values. For example,
the Clean Air Act, which was supposed to give expression to widely shared
environmental values, mandated the installation of scrubbers as pollution
control devices in coal-fired generating plants. This served the interests of
Eastern high-sulfur coal producers at the expense of Western low-sulfur coal
producers; the Act was not coincidentally supported by powerful senators from
Eastern coal producing states.
Sunstein is aware of this problem but does not regard it as a serious systemic
difficulty that cannot be resolved. He says, "often, of course, such
processes are distorted by the presence of narrow self interest on the part of
political actors, by the fact that some groups are more organized than others,
by disparities in wealth and influence, and by public and private coercion of
various kinds. I am assuming here that these problems have been sufficiently
overcome to allow for a favorable characterization of the process" (23).
As Bertrand Russell once said in another context, this has all of the advantages
of theft over honest toil. Those who favor the market (and other voluntary
organizations and institutions) are keen to display the ability of these
institutions to satisfy people's preferences and values in an efficient way, but
that has always been only part the story they want to tell. The other part of
the story concerns the inefficiencies and dangers involved in government
attempts to do the right thing, whether the latter is defined in terms of
satisfying preferences, promoting welfare or enhancing autonomy. The best
argument for respecting existing preferences and values as they are expressed in
a private ordering is not that those preferences are infallibly linked to human
happiness or even especially worthy of respect but that the statist alternative
is much worse. Though Sunstein is aware of some of the failings of the political
process alluded to above, he never squarely faces the possibility that the
problems are endemic and that there is no way to reform the political process
(in a democracy at least) in a way that will make his assumption quoted above
come true.
Many modern liberals place great faith in campaign finance reform as a way of
limiting the influence of special interests. In "Political Equality and
Unintended Consequences" Sunstein sympathetically reviews the case for
this. While he believes that some of these reforms can be done and would have
their intended effect, he also believes that others would prove ineffective,
self-defeating, or at odds with the Madisonian conception of democracy he
favors. This realistic attitude about the effects of campaign finance reform
contrasts oddly with his assumption in other essays in this collection (notably
those in Part I) that politicians and the bureaucrats they appoint are capable
of routinely acting on the basis of a correct perception of what is in the
public interest.
Part II is a miscellaneous group of essays on rights, one of which is of
particular interest. In "On Property and Constitutionalism," Sunstein
reviews the political and economic changes in and the challenges facing the
formerly communist countries of Eastern Europe. He is concerned to emphasize a
problem or challenge that he believes has been unjustly neglected, namely, the
problem of constructing a constitution that limits the power of the state over
private property. As classical liberals have emphasized, constitutional
limitations on state power over private property are essential if a market
regime based on private property is to succeed. If the state has the power the
alter or truncate property rights arbitrarily and without compensating those
whose interests are harmed, the economic benefits of a market economy will not
materialize, and citizens will not have the independence that is necessary for a
well-functioning democracy. (Contemporary Russia comes to mind as a spectacular
example of this failing.) In this essay, Sunstein makes these points about
private property trenchantly and explores their implications and ramifications
in detail.
The essays in Part III focus on government regulation, specifically,
environmental, health and safety regulation. Though Sunstein sees a large role
for government in these areas, his views are complex, nuanced, and appreciative
of the critique of regulation that has been developed over recent decades by
economists and legal theorists who are sympathetic to free markets. In
"Paradoxes of the Regulatory State," he explains in detail how
regulation can be counterproductive to its intended aims. "Democratizing
America Through Law," argues that government should (i) rely more on
providing information and less on sheer coercion, (ii) eschew as much as
possible command-and-control regulation in favor of creating economic incentives
to encourage desirable behaviors and discourage undesirable behaviors, and (iii)
decentralize decisionmaking about regulatory issues as much as possible.
On the other hand, Sunstein has significant disagreements with contemporary
proponents of deregulation. In "Congress, Constitutional Moments, and the
Cost-Benefit State," he objects to two prominent features of the latter's
proposals for regulatory reform. One concerns some sort of requirement to
incorporate cost-benefit analysis into the regulatory decisionmaking process, an
idea that was pressed by Congressional Republicans in the 104th Congress. The
other, advocated by free market environmentalists, is to define and assign
property rights more completely and unambiguously, thereby internalizing various
externalities such as pollution. Though Sunstein believes there are instances in
which these approaches would work, he objects to their being the guiding
principles for regulation that their proponents envision. The bases for his
objections are to be found in some of the themes discussed in the essays in Part
I. Both treat incommensurable values as though they were commensurable.
Regulation has a variety of goals, some of which are not best understood in
terms of efficiency. Examples include anti-discrimination law, laws designed to
protect pristine areas and endangered species, laws intended to fulfill cultural
aspirations, and laws that aim at redistribution (368-69). At best, cost-benefit
analysis can provide only a distorted picture of the desirability of government
action to achieve these ends. Free market environmentalism, which seeks to
create private property rights which can then be enforced by the courts, takes
as its touchstone private willingness to pay and also assumes a commensurability
of values that does not exist. Moreover, it treats people only as consumers and
not citizens. "A market oriented understanding of regulation is inadequate
because it makes no space for public deliberation" (379). The democratic
political process, Sunstein believes, is the appropriate forum in which to
realize these other values and to make the inevitable and necessary trade-offs
among values that are incommensurable.
A problem with this approach, however, is that it fails to take account of the
forces that are set in motion when the definition of property rights is
permanently on the political agenda. This regulatory regime, which is what
exists now, is a world of threats and opportunities for private parties. This
means that the latter have every incentive to shape the political process that
issues in regulation and the implementation of the regulations that emerge in
way that furthers their interests. Although Sunstein displays great sensitivity
to the problem of unstable property rights in his discussion of the emerging
market economies in the formerly communist world, he does not see that a similar
problem arises in Western democracies when regulation is used to realize various
and sundry incommensurable and/or collective values.
Despite the problems discussed above, this collection of essays represents the beginnings of a sophisticated defense of much of the modern liberal agenda on the proper role of government, a defense that takes seriously some of what critics of big government have been urging for a number of decades. If taking one's opponents seriously is a necessary condition for progress in a debate, this book makes a signal contribution to that debate.
References
Kuran, Timur. 1995. Private Truths, Public Lies: The Social Consequences of
Preference Falsification. Harvard University Press.
N. Scott Arnold
University of Alabama at Birmingham
3285 words