9. The Efficient Society (Part 3)

In chapter 5 of The Efficient Society, Joseph Heath discusses the virtues of markets, the primary one being that they allow us to solve the question of how much stuff of different types should be produced to make a complex society work, a problem that is too mathematically complex to be solved mathematically but can be resolved by allowing individuals to make their own decisions and then allowing the market prices determined by those decisions signal where more of goods that are in demand are needed and vice-versa.

He notes that it is possible to have trade and markets without necessarily having competitive markets, using the example of the early days of the fur trade in Canada, when the British government gave one company (the Hudson’s Bay company) a monopoly on the fur trade, rather than encouraging competition.

Heath makes a few key points about competition in this chapter:

1) Competition is a way of getting people to put in more effort. It isn’t really tied to capitalism specifically as competition is used in many areas, from Soviet factories that were offered prizes to whoever could produce the most, to Girl Guides who have a competition to see who can sell the most cookies.

2) Competition, by its nature, creates Prisoner’s Dilemma type situations. All will make the effort to achieve something, but it wouldn’t be a competition if there weren’t people who end up losing the competition. Heath explains how businesses in competition with each other are trapped in a Prisoner’s Dilemma since even though they would all be better off to cooperate to keep prices high, each of them has an incentive to undercut the other's prices for their own benefit.

3) Because of its Prisoner’s Dilemma type structure, competition is generally considered a bad thing (why do you have to be so competitive all the time, anyway?) – competition is only good when there is something good produced as a result of the competition.

4) Competitions can only produce a good result, when they follow certain rules.

Picking up the third point in more detail, a competition between two hockey teams is valuable because of the entertainment it provides. Competition between various companies is good because it results in a push for innovation to better serve customers and it serves to lower prices for customers (note these could be considered positive externalities to the competitive process).

Moving to chapter 6, Heath notes that in the market, a proper price signal reflecting the true level of supply and demand is only created when the people in the market follow their self interest. We’ve all been in the situation of trying to decide on where to eat, and each person wants to go along with what the other person wants, but as a result can’t be sure if what the other person is saying is what they really want or just what they think you want. Heath gives the example of electrical generators being sent to Montreal after the ice storm in 1998. There was a backlash against people 'gouging' the residents by offering to ship generators there for an extremely high price, but that high price also has the benefit of signalling the true level of demand and encouraging more people to ship generators there.

(Note that this ties back to chapter 10 of 'No One Makes You shop at Wal-Mart' where we saw that the reason for the backlash in this case is that there is an involuntary component to a transaction involving selling a generator to someone who might otherwise freeze to death or be forced out of their home.)

It is this aspect of markets - that in the market the best action is to pursue your self-interest rather than altruistically pursue a collective good - which Heath believes accounts for the historically 'dishonourable' nature of being in trade or being a merchant (of Venice, or otherwise).

In an interesting passage, he comments on how Nietzsche saw morality as a conspiracy of the weak against the strong, and that Ayn Rand picked up this thread but made it more plausible she "dilute[d] this Nietzschian animus towards morality with a fawning respect for capitalism"

More plausible, In Heath's view because of the point above that when you are in a market, the outcome is better if you compete and follow your self interest rather than being altruistic and cooperating.

He then notes that markets don't require no morality, they just require less morality. He says,

"In order for capitalism to function smoothly, we need to refrain from stealing, from using violence to achieve our ends, from making fraudulent misrepresentations, etc. The list goes on and on. These are all legal and moral obligations. If people did not respect these basic rules, the entire system would fall apart"

Actually, if the list really does goes on and on, I wish Heath would have continued. For now, I'd just note that if you think back to Jane Jacobs' 'Systems of Survival', her list of 15 commercial ethics included 'Respect Contracts', 'Shun Force' and 'Be Honest' which matches up pretty well with Heath's 'refrain from stealing, from using violence to achieve our ends, from making fraudulent representations'.

Both this idea of Heath's that the markets require 'less morality' to function and the contract between Nietzsche and Rand's concepts of ethics are things that I'll likely return to before finishing this series.

More on chapter 6 and the concept of Market Failure in the next post.

8. The Efficient Society (Part 2)

Note: I previously posted on chapters 3-5 of 'The Efficient Society' here, back in 2005. This time around I'll cover much of the same ground, but I'll go into a little more detail, and maybe emphasize some different points.

Chapter 3, "Perverse Outcomes" covers situations where people make rational choices intending for a certain outcome, but 'perversely' end up with results that are the opposite of what they are aiming for. This, again, comes back to Prisoner’s Dilemma and Arms Race type situations and has already been described here and here so I won’t say too much more other than to highlight a couple of key passages.

"As we have seen, the mere fact that people realize they're in a prisoner's dilemma, and realize that their own behaviour is contributing to the misery, does not mean that they have any incentive to change what they are doing. For example, just knowing that it's a 'bad thing' for everyone to be running around with guns does not mean that individuals do not have an incentive to own a gun (and especially not if everyone else is going to be running around with a gun, regardless of what you do). In order to actually change the pattern of behaviour, people must be given some sort of incentive.

(These incentives actually come in two flavours: internal and external. The interior controls are what we normally think of as morality and these can be quite effective under certain circumstances. But this is complicated and so I will set aside until the next chapter.

The last example, Heath provides in the chapter describes how the city of St. Louis, back in the 1970's decided that rather than raise taxes to pay for street maintenance, they would sell the streets off to neighbourhood groups who would own the streets and do the maintenance themselves. But after a while, the new street owners figured that they saw no need to let just anyone drive on their streets and so, many streets came to be blocked off to through traffic. Eventually, a local university had to negotiate with various street owners to negotiate a passageway that would allow students to be able to get through to the university.

This highly inefficient situation results from the American unwillingness to sacrifice liberty for efficiency (you might be thinking about Health Care after reading that sentence, but Heath doesn't cover that until chapter 7)...

Instead, let's go on to chapter 4, picking up Heath's concept that the necessary incentives to overcome prisoner's dilemmas are often internal or moral in nature.

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Chapter 4 starts off with a great line, "Anyone who has ever lived with roommates understands the Hobbesian state of nature implicitly"

Heath goes on to explain how if 4 students sharing an apartment, because all like to live in a clean place and all prefer others to do the cleaning, it is a prisoner’s dilemma type situation where everyone has an incentive to free ride on other people’s cleaning efforts so nobody wants to be the sucker who cleans while other people take it easy and the place ends up looking like a pigsty.

Eventually, the students might come together and make up a list of rules that divide out the tasks in order to make for clearer accountability and allow people to punish those (typically in fairly low key ways such as by making sarcastic remarks) who are not doing their part.

Heath then goes on to the question of why people tend to follow rules, even when the benefits to breaking them might exceed any potential punishment that might be imposed. He gives the example of cleaning up after your dog in a park, even when there is nobody around to see if you don't. He points out that cleaning up after the dog is something you do because if people (in general) didn't do that, the results would be a mess. This corresponds with the sort of 'golden rule' (do onto others as you would have them do onto you) that is found in the moral code of almost every culture. In other words, sometime our sense of morals suffices to prevent prisoner's dilemma type failures of cooperation from occurring.

Heath then tackles the question of why we can sometimes rely on our morals to escape prisoner's dilemma type situations and why sometimes our morals fail us. They key element, he argues, is trust. People don't like to be taken for suckers so if they can be assured that others are doing their part (keeping the house clean, cleaning up after their dog, paying their taxes, etc.) they will usually do the same. Situations where this sort of trust can't be established lead to failures where we are trapped in the Prisoner's Dilemma without some sort of external incentives (punishments or rewards for cooperative behaviour) being used to bring about cooperation.

He concludes the chapter looking at one of the ways people have traditionally used to overcome the problem of securing cooperation among large groups of people - hierarchies. The hierarchy, where those who cooperate to achieve the collective objectives are promoted while those who don't cooperate are punished, allows a large group of people to work together without constantly undermining each other putting their personal interests ahead of the cooperative goal.

Chapters 5 and 6 of the Efficient Society discuss markets, and will be covered in the next post.

7. The Efficient Society (part 1)

After a post on the concept of Pareto efficiency, it is natural that the next book I want to talk about is Joseph Heath's, 'The Efficient Society'

Much like Systems of Survival, this is a book I've already discussed at length her on the blog so for this post, I'm simply going to be lazy and reprint my earlier post on chapter 2 of The Efficient Society, where Heath contrasts a society based on the notion of a shared set of what is right with one which tries to allow people to pursue their own vision of what is right in as efficient a manner as possible.

A few notes before I cut and paste my old post in:

* I reproduced the post, but there were a number of excellent comments on the original which are worth reading.

* At the time, I commented that chapter 2 was the one I found most interesting, but now I consider chapters 3-7 (to be covered in the next post or two in this series) as the heart of it.

* In the comments to the original I mentioned that, "All this stuff is like pieces of a jigsaw in my head, which I can't quite put together" so you might consider the current series of posts as an effort, not so much to put the jigsaw together, but to at least set all the relevant piees out on the table, so to speak.

* The concept of efficiency that Heath is using, is Pareto efficiency, as defined in the last post - meaning situations where nobody can be made better off without making someone else worse off.




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Same-Sex Marriage & The Efficient Society: Perfection vs. Efficiency:

In chapter 2 of The Efficient Society, Joseph Heath compares two possible value systems for a society: trying to achieve perfect virtue vs. trying to be as efficient as possible.

Heath argues that throughout time most societies have viewed the pursuit of good (virtuous) living as the goal of society. Whether in the world of Islam, Europe in the middle ages, or Communism in the Soviet Union, society functioned by requiring everyone to buy into the same set of moral values. Of course this required getting agreement on what actions are virtuous and which are vices - here religion traditionally (although not always, as the Communist example shows) plays a big role in determining which actions are good (those which please God) and which are bad (those which offend God).

The (potentially) fatal flaw in this type of arrangement is pretty clear - it only works if there is near unanimous agreement about what is virtuous and what is bad. Seen from this perspective, the greatest threat to this type of society is the heretic or dissident - which helps explain why heretics and dissidents have been treated so appallingly (by modern standards) throughout history and why so many societies/religions work so hard to 'convert' people to their beliefs.

Heath argues that the combination of advancing technology (which made disagreements much more lethal) and the Reformation which split the church in Europe and caused numerous civil wars led people to reconsider whether this was a sustainable model for society. He suggests that it was the 'social contract' theorists, Thomas Hobbes, John Locke et al, who developed a new set of values for society. In this new model, the state would no longer seek to impose values on society but would only use the powers which society agreed (contracted) that it should have, most notably a monopoly over the use of force to enforce contracts and prevent disagreements over values from getting out of hand and causing more civil warfare.

Heath calls this new model 'the efficient society' because, with the state's role reduced to enforcing contracts rather than values, legitimacy is shifted to those transactions which both parties enter into voluntarily. And since both parties enter voluntarily, it is presumed that both gain something - i.e. it is a win-win transaction. But in order for both parties to gain, the transaction must be doing things more efficiently than in the past. Since nobody stands to lose anything from these win-win contracts, there is no reason for violence over clashing values, and everyone can just get along.

In this model, everybody keeps their values to themselves, since to impose them on (unwilling) others would require the use of force, and this is reserved to the state which is mandated not to intervene in matters of values (what we generally refer to as the separation of church and state).

This should become a lot clearer with an example. For a topical example (which Heath also dwells on at length) let's consider the debate on Same Sex Marriage.

In a society which depends on a shared set of values, it is necessary to assess the virtue of various activities, with sex being a major topic of interest. Pretty consistently, societies have decided that the virtue of sex (God's purpose in creating sex, if you will) was for the creation of children - which makes a fair bit of sense. From there it is an obvious next step to say that all sex which can lead to the successful upbringing of children (i.e. intercourse between a married couple) is good and pretty much everything else (gay sex, straight sex which won't lead to children, contraception, abortion, etc.) is bad.

Now consider sex in a contractual society. In this society, the state's role is simply to enforce contracts and to maintain it's monopoly on the use of force. So as long as some sex act has been agreed to by two (or more) consenting adults - that is a win-win 'efficiency' gain1 and the state has no right to interfere. Only where there is a lack of consent (rape, pedophilia) has the monopoly on force been violated and the state needs to step in and punish the offenders.

So, as Heath says, opponents of same-sex marriage may question the values which lead us to accept this act, but these are the same values our society has been built on for hundreds of years now and approval of same-sex marriage is just an artifact of these values finally being reflected in our laws after a long lag time.

We can see this clash of values: perfection vs. efficiency, very clearly in the Canadian blogosphere.

Consider this post from Curt at Northwestern Winds. He quotes an address to the UN by Chris Kempling,

"One would think that tolerance would mean that social liberals would be tolerant about our religious beliefs. In the Newspeak of today, however, tolerance means everyone is obliged to take a liberal attitude towards immoral sexual behaviour, but those who practice that immoral behaviour do not have to tolerate Christian beliefs which oppose such behaviour."


...and then concludes with,

"This trend is appalling abuse of the vaunted separation of church and state, itself ironically an American concept. Too many people think that slogan runs only one way. Get a clue: it means the churches can't set bars to the levers of government and it means that the government will not hinder the thoughts and teaching of the churches in the private sphere. What is happening, and this is why the trend is so alarming, is that the understanding of what is private is shrinking, and very rapidly too."



By suggesting that same-sex marriage supporters are being intolerant themselves and trying to deny the rights of religious people to enter into contracts (speaking engagements for example), same-sex marriage opponents can use the efficiency values of our society against same-sex supporters, and feel as though they have the upper moral hand, even on an efficiency basis.

The trouble is that there is really no significant movement of any kind to prevent churches from doing whatever they want on the issue of the treatment of gays. The catholic church still doesn't allow women(hardly a particularly downtrodden group, especially in comparison to gays) to become priests and the government isn't stepping in and forcing them to and it's not going to.

The reason statements against gay marriage by church leaders draw opposition in our society is that, while the statements are obviously made in the private sphere (where else could they be made?), their objective is to influence the public sphere. Specifically, the objective is to use the coercive power of the state (as Bishop Henry so honestly stated) to prevent gays from entering into win-win contracts (in this case marriage). That is where the opposition to church statements against gay marriage comes from - because, while accepting that society in general operates on values of efficiency, many religious people view the particular case of gay marriage as being so extremely unvirtuous that it requires state intervention to impose the values of one group on another.

Previously, I had never really understood why gay marriage opponents would put themselves through logical contortions and make exaggerated claims but I see now that a lot of it stems from trying to find a rationale for opposing same-sex marriage which doesn't conflict with our society's efficiency values.

Now, consider this post from Skippy over at The Amazing Wonderdog:

"I can understand why some people are so vehemently opposed to gay marriage, why people simply feel that something about this is, well, wrong - and it's why I feel that I'm not vilifying anyone by accusing Stephen Harper of pandering to the homophobe vote.

But there's a difference between me and the people Harper is pandering to: I recognize that this [being uncomfortable with the idea of gay sex] is my problem, and mine alone."


...

"We have no right to limit their rights, or their happiness, or to place obstacles in their lives purely to make ourselves comfortable.

Your right to swing your fist ends at the end of my nose, as the old saying goes."

...

"Tolerance is not a matter of having no qualms; if it were, we wouldn't call it "tolerance." It's a matter of putting aside your qualms and recognizing that you cannot impose them on others."



Skippy has fully internalized the efficiency values of our society. The monopoly of the state on the use of force (coercion), the true nature of tolerance and why it's important, and the fact that in an efficiency based society we have no right to deny others from entering into win-win contracts.

For a final word, see why Andrew at Bound by Gravity is such a good blogger in this recent quote from him:

"If we [the Conservative party] are ever going to unseat the Liberals then we MUST stop acting like the Christian Heritage Party, and start acting like Canada's next government. Canadians, by and large, don't give a rat's ass about issues of conscience - they care about day-to-day things like money, medicare, and infrastructure. Talk their language and you might be surprised at how so many of them are willing to listen."



I had to give Andrew the last word because he sums the whole situation up in a few short sentences. Canadians, by and large don't care about perfection of virtue (issues of conscience), what they care about is efficiency (money, medicare, infrastructure). Therefore the Conservatives have to stop speaking the language of shared virtue (acting like the Christian Heritage Party) and talk to Canadians in terms of efficiency. Well said.

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Anyway, this was probably my favourite chapter in the book because, even just in the week since first reading it, it has really sharpened my understanding of both history and some current debates such as same-sex marriage.

One thing that I'd like to investigate further is a possible link between these two value systems Heath describes and the two systems of ethics described by Jane Jacobs in 'Systems of Survival'2. Jacobs argues we have two different sets of ethical rules, one for activities which are generally based on taking things (generally government/military activity - things involving the use of force) and one based on trading things (affecting commercial activity primarily).

Clearly there is some overlap here, although Jacobs argues that successful societies need to use both ethical systems simultaneously with each supporting the other, whereas Heath argues that 'efficiency values' have gradually been driving out 'Perfectionist/Common Virtue' values ever since the days of Thomas Hobbes (centuries ago). Food for thought for another time I guess.


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1 keep in mind that Heath uses the word efficiency in the sense of increasing overall welfare, not in the narrow manufacturing sense of producing more widgets per worker

2 I've posted on Systems of Survival a few times, most thoroughly here in the context of the NHL lockout.