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Student Essays on Post-Autistic Economics
posted April 2003
Communities
and Social Goods:
The case
of the missing social realm
Rick Wicks (Doctoral Candidate, Economics Department, Göteborg University, Sweden)
The core of economics, insofar as it relates to policy, is directed to
keeping markets running satisfactorily, keeping production efficient and
growing, etc. Related to this market core are three potential problem areas:
1) market forces may result in poverty, or in income differentials which
undermine democracy and the political environment; 2) market forces may
threaten the natural environment; 3) market forces may threaten the social
environment. Without wishing to slight the market core or either of the other
two related potential problem areas, my concern here is with the latter, the social environment. And while there
is some conceptual overlap (just as there can be with intermediate goods used
in production, which might also be used directly as consumer goods), my
concern is not with social capital
used in production or exchange processes, but with social goods which enter the consumer's
utility function directly.
Many technical problems have been pointed out with neoclassical economic
theory, (e.g., see Keen 2001). But one of the biggest problems with its content -- pace Becker (1976) and others (e.g., Coleman 1990-94, Iannaccone
1998, Becker and Murphy 2000) -- is its near-total omission of the social realm: communities and the
social goods we derive from them.
Communities are groups based on kinship, location,
or ideology (see Nisbet 1953/70, Bell 1993, and Etzioni & Etzioni 1999),
while social goods are such things
as a sense of purpose, belonging, security, and identity, as well as love and
friendship, even tolerance and common courtesy.
We seem to have a deep need for communities
and social goods (Lewis, Amini, and Lannon 2000), even though it may not
always seem "rational" to invest in them. Many aspects of
traditional culture may have co-evolved in order to guarantee satisfaction of
these needs despite their apparent
"irrationality" (Chwe 2001). Thus it's not always clear that it's
the expected consequences for an individual now which matter; rather, what matters may well have been what
shaped our character primordially, the expected consequences in the
"ancestral environment" in which we evolved (Wright 1994, Sober and
Wilson 1998, Boehm 1999).
Ever since the advent of capitalism, and even
since the much earlier advent of markets (Pryor 1977), many observers have
been concerned about market effects on this social realm of communities and
social goods. Many students are aware of and share these concerns.
But neoclassical economic theory ignores the
social realm almost entirely, not even noting its absence in fundamental
discussions of utility and welfare, which is where "the bullet hits the
bone"; cf. Walras 1874-26/1954, Pigou 1920-32/1962, Arrow 1977/83,
Boadway and Bruce 1984-93, Myles 1995, Jha 1998.
Consequently, policy-advice based on
neoclassical economic theory increases its risk of being highly unrealistic
in terms of true overall social
welfare.
And the teaching of neoclassical economics
increases its risk of being sterile and unrewarding, as it is in fact often
found to be.
For economic theory to include (or even to discuss the omission of)
communities and social goods will require recognition that such a social
realm both exists and is different from the market (or economic) realm. As
Fullbrook (2001, pp. 7-8) says: "[T]he blockage of the first phase [of
Bhaskar's (1979) "three-phase schema of scientific development"] --
the identifying of phenomena -- has stalled economics…" Thus it might be
helpful if economics were to return to one of the most fundamental of
scientific questions, of basic taxonomy (cf. Ruhlen 1994, p. 195): What are
the social phenomena to be understood, and how can they be usefully
categorized?
A very natural distinction in social science
seems to be that between economic, political, and social phenomena.
This may be slightly confusing because of
course they're all social, so what
are the differences between them, and what is specifically social (as differentiated from political or
economic)?
·
While "economic" can refer to
any method for production and distribution of goods and services, in this
context it most usefully refers to exchange in markets, based on mutual
benefit.
·
Prior to the development of markets,
there was political redistribution,
that is, based on power
relationships.
·
And previous to the rise of political
power with agriculture and cities, hunter-gatherers distributed according to tradition or custom, that is, socially, based on identity in communities.
·
(While a Robinson-Crusoe
"economy" is interesting analytically for some purposes, it
collapses all three of these into a single individual, and thus isn't very
useful for social analysis.)
This simple
three-fold taxonomy of economic, political, and social phenomena seems
fundamental to the social sciences, so much so that it is often used without
explanation, seemingly unconsciously. But Kenneth Boulding (1980, 1985,
1990), for example, explained it as follows (in reverse order from above):
·
I can give to you or you to me, which is the basis of community, the fundamental social realm (Gudeman 2001 prefers the
terms "allot" or "apportion" rather than give).
·
I can take from you or you from me, which is the basis of government, the political realm.
·
We can exchange, which is the basis of markets, the economic
realm.
These three principles (giving, taking, and
exchanging, based respectively on identity, power, and mutuality) can be
mixed together in a variety of ways, and are perhaps never found alone and
pure. Nevertheless a wide variety of social scientists use this three-fold
categorization -- sometimes under slightly different names -- so it would
seem to represent something fundamental in our experience. Under Goodman's
(1985, pp. 79 & 81) "Principle of Objectivity" --
"Anything which is practically real should be taken as objectively
real" -- neoclassical theory must find a way to deal with the social
realm.
Since the days of Adam Smith and before, economics has explored the effects
of politics and government on markets,
and to some extent it has also explored the reverse effect, of markets on
politics and government (or, at least, politics and government as a market, as in public-choice
economics).
And similarly, development economics in
particular has begun (with social-capital theory) to explore the effects of
communities and social goods on production for, and exchange in, markets.
But as noted above, the reverse effect -- of markets on
communities and on their social goods which enter the consumer's utility
function directly -- has been almost universally ignored in neoclassical
theory.
While it may be true that "social capital" plays a role in the
production and exchange of market goods and services, is it possible that
markets are otherwise "separable" from the social realm, having no reverse effects (positive or
negative) upon communities and social goods? If so, this could account for
the total absence of analysis of such effects in neoclassical discussions of
utility and welfare.
But while it is perhaps not easy to
"prove" either way, there is substantial evidence that there are
significant effects of markets on communities and social goods.
Mishan (1967-93) explored the effects of
markets on communities and social goods both anecdotally and theoretically
and found substantial reason to suspect that those effects have been
significant (and not all positive).
Putnam's (1995, 2000) massive empirical study
explored many possible causes for recent social (or, more specifically,
"civic") decline in America -- many of them economic -- and finally
pinpointed three causes (the first two of which are clearly related to
markets):
·
changing living and working patterns;
·
changing consumption patterns (TV); and
·
generational change (the decline of the
generation that found comradeship in fighting World War II together).
Hirschman (1986/92)
reviewed the literature of the last 2+ centuries and came up with a four-fold
classification (below) of possible interactions between the market realm and
the social realm.
 Adapted from Hirschman (1986/92, p. 136.)
It is Hirschman's
top two hypotheses we are here concerned with, especially the second, the
possibility that market effects might be negative
("self-destructive"). The first ("doux-commerce") refers
to the hypothesis that markets might improve manners and civic behavior, thus
generating positive "social
capital" (a possibility which neoclassical theory also seems to ignore,
though it would probably not conflict with the usual welfare conclusions).
Plumb (1972/88) even
goes so far as to suggest that we are at the "end of an epoch".
Plumb says that our fundamental institutions (the family, religion, schools,
the city, and government) which have held us in good stead throughout the
Neolithic Epoch (since the rise of agriculture 10,000 years ago, and the rise
of cities 5,000 years ago) are being undermined at their roots, due to the
effects of science and technology (largely mediated through markets).
Thus for a variety
of theoretical and empirical reasons it would seem appropriate for
neoclassical economics to consider the effects of markets on communities and
social goods.
Any theory of markets or scarcity must include the social
realm
Markets, and even neoclassical theory about
markets (see Marwell and Ames 1981, as well as Frank, Gilovich, and Regan
1993), seem to affect communities and the provision of social goods, so it
would seem that any thorough theory of
markets would have to deal with communities and social goods.
Similarly, social
goods are scarce, and the
communities which produce them are both scarce themselves and affected by the
scarcity of other goods (including money), so again it would seem that any
thorough theory of scarcity would
have to deal with communities and social goods.
But neoclassical
theory -- which presents itself as the
theory of scarcity, and often also assumes itself to be (and is perceived
by many as) the theory of markets
-- conveniently neglects to deal with communities or social goods (at least
not thoroughly, for example in fundamental discussions of utility and
welfare).
How has
economics managed to ignore the social realm?
Economics prides itself on tracing and elucidating all of the effects, whether direct or indirect. So it's hard to
understand how effects of scarcity and markets on communities and social
goods could have been left out.
But even those
(e.g., Johansson-Stenman 1998) who point out that humans act in a social
context -- and hence that we may need to go beyond reductionist individualism
(also known as "methodological individualism") -- often miss social goods and social utility, being usually more concerned with social capital.
Welfarism --
including individualistic or welfaristic social-welfare functions -- also
comes close to the issue of community, without quite finding it. We can
accept that we should consider only the welfare of individuals without in any way denying the importance of the
welfare of communities, because if
the communities suffer, so will the individuals. But we will have to consider
the effects of social goods on
individuals, or we will miss something of fundamental importance.
Ironically, where we
seem to finally eliminate social goods is in the restriction to the
Bergson-Samuelson "social-welfare" function, which excludes
externalities (and, failing to recognize social goods, accepts only
consumption of market and public goods).
And the key is
indeed "methodological individualism", which economic sociologists
Smelser and Swedberg (1994, p. 5) characterize as "the actor is
uninfluenced by other actors", or, in the words of economic
anthropologists Douglas and Ney (1998, p. 5), the actor is "a
generalized human individual conceived as nonsocial or presocial".
Economist Frank
Knight (1921/40) -- who spelled out the assumption clearly and honestly --
put it this way (p. 78, italics added): "Every member of society is to
act as an individual only, in
entire independence of all other persons. To complete his [sic] independence,
he must be free from social wants, prejudices, preferences, or repulsions, or
any values which are not completely
manifested in market dealings."
What a nice simple
(or perhaps not "nice", but simple) world it would be.
Empirically it
may be difficult to include the social realm in economics
It is of course
convenient for neoclassical theory to omit communities and social goods
because, admittedly, dealing with them would be messy. Just as with many
aspects of environmental economics, communities and social goods are not
easily quantifiable. (And as environmental economics attempts to implement community-based environmental
measures, the overall results may be still harder to measure.)
But in thus being
"clean" and easily measurable, neoclassical theory is also sterile,
and sterility isn't especially attractive to students. Including communities
and the social goods derived from them in utility and welfare theory (or, to
the extent that they cannot be included, at least openly acknowledging and
discussing the implications of their omission) would make neoclassical
economics vastly more interesting to students. It would also greatly improve
the real-world applicability of any policy conclusions derived. Just as
environmental economists have taken the plunge into less easily measurable
aspects of welfare, so must we develop social
economics.
It's deceptive
not to include the social realm in economics
For economic theory to leave out communities and social goods while
presenting itself as the theory of scarcity and markets is fraudulent.
Intentionally or not, language such as the following is deceptive:
·
"social welfare", when communities
(the basic social units) -- and the social goods derived from them -- are
overlooked;
·
"complete contracting", when the fact that there are (and can
be) no contracts for social goods
is overlooked;
·
"universal markets", when the fact that there are (and can
be) no markets for social goods is
overlooked.
These and many similar usages give economic
theory an air of dishonesty (and unreality) which cannot help its public
acceptance or genuine usefulness.
Including discussion of communities and social
goods in fundamental discussions of utility and welfare could help to dispel
that air of dishonesty and unreality by alerting students and others
(including policy-makers and the ultimate consumers of policy-advice, the
general public) to the many real social issues beyond the more narrowly
"economic" ones which current theory and practice address. It would
also help to liven up the subject.
Including the
social realm is a matter of intellectual honesty and rigor
Including communities and social goods (or at least including a thorough
discussion of the consequences of their omission) in fundamental discussions
of utility, in policy recommendations about welfare, and thus in resulting
public debate, is not a matter of whether or not one "likes" (or
"believes in") markets. It's a matter of intellectual honesty, and
of -- dare I say it -- rigor.
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