Comment on Becker-Posner blog responding to Professor Gary Becker's post "Does the Free Market corrode Moral Character?" on November 2, 2008.
In his article "Does the Free Market corrode Moral Character?", posted on the Becker-Posner blog, Professor Gary Becker examines the mechanisms available within the free-market framework which could prevent corrosion of moral character. Particularly, (i) he analyzes the mechanism of repeat-business thoroughly, (ii) he explains the role of the free flow of information to consumers on collusion and other malpractices, if any, so that they can punish dishonest businessmen, (iii) he mentions the phenomenon of default-judgment to suggest that people might be favoring government regulations just because they are encountering problems with free markets, (iv) he explains "capture theory" to illustrate why regulations could make the situation worse. Finally, he employs the default-judgment argument once again to pose the question whether businessmen or professors have the worse morality.
Pursuing Professor Becker's mechanisms approach further, I would like to argue that the nature of technology itself is relevant to this topic. During the last 100 years, technological change has been happening at a breathtakingly rapid pace, much faster than in earlier centuries. The period of time that a certain technological development would be considered "cutting-edge" does not exceed five to ten years in most cases. In contrast, the universities teach general principles that would benefit the students throughout their lifetimes.
This is true both for the liberal arts curriculum and the engineering disciplines. Training in the latest technology or other vocationally beneficial topics would constitute only a minor part of the students' curriculum. In contrast, nearly every company is dependent on technology, in some way or the other, for its source of revenues. This dependence makes it necessary for the companies to put a far greater value on a different set of skills among their employees. As I will explain, this variance of "ethos" between the universities and the companies is a source of corruption which gets amplified by free markets.
I think it can be safely assumed that socialist and communist forms of governments are not very adept at absorbing rapid technological changes. Through the theory of marginal utility, the market framework is able to deal with rapid technological changes, although it can often seem that the behavior of the markets is chaotic and aimless. Companies that hope to survive in the marketplace have to keep-up with the cutting edge of technology.
In fact, abstract concepts like technological development, innovation, and human capital, rather than tangible goods or agricultural products, are what account for the predominant share of a nation's economic value in modern times. Invariably, this means that the student who graduates with a university degree, whether a bachelor's, a master's, or a doctorate, is in need of further training, the complete duration of which could range from six months to several years, to be able to function well as an employee in the company.
Moreover, this fresh graduate is expected to re-orient his/her core values to fit in with the vaguely defined notion called company ethos. As a result of this fitting-in process, it is quite often the case that most of the individuals whom the universities rated as top-class are not going to make it to the top of the modern company organizations. In fact, if one were to survey the Fortune 500 companies, the rapidly growing Silicon Valley software companies, or the finance companies in New York, the top management would not constitute many 4.0 GPAs or many PhDs from the top-ranked universities of the world.
It is this sudden discontinuity in the value system that the fresh graduate encounters that is the cause that leads, in later years, to much cronyism, influence-peddling, and other nefarious activities in the more senior levels of the modern company organization. The university system focuses on values that are well-defined and well-understood. This makes the value system fairly stable, and thus allows for a meritocracy among students. Those with the most natural gifts and those who put in the most hard-work are the ones most likely to succeed. In stark contrast, in a company organization, individual merit alone will not lead to career success.
The importance of this issue becomes clearer when one notes that in modern economic analysis, participants in an economy are rational decision-makers, for the most part. However, the fresh college graduate does not get such an environment that encourages rational thought when he is employed by a company. Almost always coercion is present.
Another point to note here is that free markets aim to minimize the influence of power. The same is true of the university system, where the love for learning among students, or the love of their own careers, leads to their good behavior. The exercise of administrative power to correct a student's behavior is rarely necessary. However, by its very structure, the company organization is set up to remind the fresh employee, not wholly infrequently, about his/her place in the hierarchy of power. This introduction of power into the immediate environment of the fresh graduate is another major cause for the corruption of the value system of company executives.
In conclusion, the nature of technology and the structure of the modern company organization, rather than free markets, could be the reasons for the corruption of moral character among businessmen. I would not like to give the impression that technology, in itself, is bad.
