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.
2 comments:
Your post reminds me of an old essay by Nozick--I no longer remember where it appeared--explaining why academics tended to be politically on the left.
He argued that students face two systems for giving status. One, grades, is centralized, and based, or at least claims to be based, on a single set of objective criteria. The other, social status, is decentralized and depends not on how well you can pass an exam but on how good you are at dealing with your fellow students.
The students who are good at the latter are likely to end up as successful businessmen, those good at the former as academics. Hence academics end up favoring centralized systems of allocation that claim to be based on objective merit. They conclude, as you seem to, that the failure of the A student to end up as the CEO indicates something wrong with the market's approach to evaluating people, rather than limits to the academy's approach.
I'm not sure how well that maps into your argument, however. On the whole, I expect cheating in social relations--getting people to do you favors and not reciprocating, for instance--is rather more likely to be caught than cheating on tests, much more likely than cheating on homework. So I'm not sure that the students who go into business and succeed are likely to be less ethical than those who stay in the academy and succeed.
Dear Professor David Friedman: One objection I can make is to your statement that 'academics end up favoring centralized systems of allocation that claim to be based on objective merit'. Academic evaluations need not be centralized, even if they are based on a single set of objective criteria. Even though the criteria for evaluating the students may be objective, the evaluation might still need a lot of judgment and supervision from the Professors, individually. For example, this is definitely the case with writing a PhD thesis. Even though the faculty understands the standards required from the doctoral student for their accepting his/her thesis, the process still requires a lot of specialized attention from the faculty. Hence, the thesis is supervised by the thesis advisor and the thesis committee, which amounts to a de-centralized form of evaluation.
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