The Morality & Markets project is an examination of the causes of the public’s current lack of confidence in the ability of markets to deliver prosperity for all. In this blog, we provide an outlet for new thinking and briefings in areas that are important to our ongoing research.
Professor Yew-Kwang Ng is the Winsemius Chair at Nanyang Technological University, Singapore, and one of the most influential economists in the world. Over the course of a forty-eight year academic career he has authored more than 30 books and published more than two hundred peer-reviewed articles. He has made pivotal contributions to or founded the fields of welfare economics, mesoeconomics, and welfare biology.
In his most recent work, Professor Ng shifts his focus to the political and philosophical debates over the proper limits to the scope of markets. His book Markets and Morals makes a utilitarian case for the (legalised and regulated) opening of controversial markets such as those for human organs and prostitution. In a wide-ranging discussion in February 2019, we explored whether some goods are just too problematic to be distributed by markets, the plausibility of hedonistic utilitarianism as a foundation for policy, the best approach to tackling climate change, and the public’s negative perspective on capitalism.
This article is an edited transcript of the main parts of that discussion. At the end is a short list of Professor Ng’s most relevant works. You can also play or download the audio version of our conversation – covering even more topics, and in greater depth – as a downloadable podcast, via the link at the right of the page (if you are using your laptop or computer) or at the bottom (if you are reading this on mobile or tablet).
A Conversation with Professor Yew-Kwang Ng
Dr Simon Kaye: Your new book, Markets and Morals, is coming out in the UK this month. What motivated you to turn your attention to the relationship between morality and markets?
Prof. Yew-Kwang Ng: Over the years the communitarians made a rather strong attack on the continued expansion of the markets to cover not only the traditional areas but expand into what they call a ‘market society’, which they are against. And then I read up on their arguments against this expansion of the use of market and I find most of their arguments are not convincing. The continued expanded use of markets is desirable in itself. The increased use of markets may create some problems, such as the alleged ‘crowding out’ of intrinsic motivation, and the feeling of repugnance by some people against certain market exchanges like kidney sales. Although I find these elements have to be taken into account, I think we should feel sympathetic to those who have to buy a kidney to save their life, or the life of a loved one, and to those who are in difficulty enough having to sell one of their kidneys – we should feel sympathetic to them rather than feeling repugnance against their transactions. If we can we should help the poor but after all the help they can get if they still think they have to sell one of their kidneys how can prohibitions help them?
SK: I suppose the first line objection to that position would be that some of the people who find themselves in a situation where they have to sell a kidney aren’t making a free and autonomous choice, they’re being compelled or coerced by their disadvantages to do so.
YKN: I agree that there are cases where you have serious imperfect knowledge or even ignorance, and there may be some cases of irrationality where market exchange may have some problems. But those who are arguing against market expansions do not base their argument on these grounds but rather on, for example, ‘inequality’, where you find it’s not autonomous because they are too poor and compelled to sell one of their kidneys. But in my view in the absence of serious ignorance or irrationality then after getting the help they can get if they still have to sell how can prohibiting it be good for them? Inequality itself in the absence of ignorance and irrationality does not justify limiting the market, though I’m in favour of promoting equality. We should try to promote equality, because when a person is poor it must be because their total purchasing power is low, it cannot be because they do not consume high quantities of a certain good. It should be applied across all goods – total purchasing power. We should not try to do it say by subsidising the consumption of some good unless there is some efficiency consideration like external benefits or ignorance or health defects or things like that. In the absence of these efficiency considerations we should not try to promote equality on specific issues like subsidising certain goods or prohibiting certain transactions. Rather we should try to increase our general equality promotion policy including say taxing the rich more and helping the poor more in terms of total purchasing power.
“I think we should feel sympathetic to those who have to buy a kidney to save their life, or the life of a loved one, and to those who are in difficulty enough having to sell one of their kidneys – we should feel sympathetic to them rather than feeling repugnance against their transactions.”
SK: That’s almost the opposite of how many states try to reduce inequalities. When the state has money that it has allocated to the reduction of inequality, it will also engage in some extent of social engineering, and what you’re saying is that this is ultimately going to be less effective than simply trying to increase the purchasing power of people who are less well off?
YKN: Unless there is some specific efficiency reasons to justify the subsidy, or there is some ignorance or imperfect knowledge which usually is better tackled by providing the information or education, that’s preferable to trying to tamper with the market.
SK: So for example in this country there are high taxes on alcohol and tobacco products.
YKN: Yes, this I’m in favour of, on the grounds partly of external effects. When you get drunk then drink driving can kill other people, so there are external costs – very high external costs – and partly on imperfect rationality and imperfect knowledge, so some people may not know certain goods are bad for them and may not distinguish between healthy and unhealthy goods enough, so that subsidising healthy goods may encourage people to consume more healthy goods. So I would regard this as partly based on some efficiency grounds although the efficiency may not be a narrowly traditional economic one, but go beyond to take into account imperfect rationality and imperfect knowledge.
SK: Returning to the idea of moral limits on markets, I suppose we might say that there may be something intrinsically important or valuable about some types of goods that for many people excludes them from market exchange?
YKN: One is that sex should be for love instead of for sale. The case of prostitution – even if we find this immoral, to have prostitution – I’m still in favour of legalising prostitution on practical grounds because you only have to compare say, a society like Australia where prostitution is legal, and a society like China where it’s illegal. You compare the two and then you find that prohibition like the US prohibition of alcohol a hundred years ago did not work. And here, now, prohibition of prostitution did not stamp out prostitutes but rather it made them go underground and made the problem of unhealthy things, crime, corruption, more serious. So it’s still bad to make it illegal even if some people may regard this of questionable morality.
SK: This feels like a sort of a purely consequentialist argument in that we’re saying that there’s an outcome from the regulatory attempt that is not good for anyone. But this raises an abstract question: if we could regulate prostitution very effectively, would it then be morally advisable for us to do so?
YKN: I’m still against making prostitution illegal. Even if you could effectively stamp out prostitution by 99 per cent, I think it’s still bad because in my view the demand for prostitution is a valid demand, prohibition is not a good policy even if it’s effective.
SK: This whole debate brings us back to a very old dilemma or discussion within economics itself, which is whether it’s proper or right to use moral language when discussing the operation of markets and indeed the outcome and the consequences of market operations. Many economic theorists have described markets as amoral, in other words detached entirely or incommensurable with moral evaluation and judgement. Is it right to think of markets as being amoral in this way?
YKN: I’m largely in agreement with that position except that I’m willing to go beyond that position in thinking that most market exchanges are moral, rather than amoral. The reason why most market exchanges are moral is because if most exchanges are mutually agreeable in the absence of force and misinformation then the market exchanges benefit both sides, and hence makes both sides better off. So it’s good, hence moral. But what is amoral are the indirect effects – side effects – of the market exchanges and associated productions, such as the production of pollution from market productions, which may be bad for society. Market side effects can also be positive, so you have pollution as an example of external costs, you can also have external benefits like someone trying to get a degree, be more educated, or someone trying to be innovative – this may also produce external benefits to others. So the market on its side effects and external effects is amoral, it can go either way.
“Markets tend to produce more good than bad. They are moral in their direct effects, their intended effects, but amoral in their side effects.”
SK: So in principle there’s no reason to imagine that markets will tend to produce either moral or amoral outcomes?
YKN: In my view markets tend to produce more good than bad. They are moral in their direct effects, their intended effects, but amoral in their side effects. Then we have to look at the side effects and if it’s negative and serious then we may have to tackle it, like the Government may have to tax pollution.
SK: I think this is quite a subjective concept of morality. It’s based upon the idea that what we can call moral is anything that two parties ultimately agree to and which don’t have subjectively undesirable consequences or externalities, whereas some people would look at the word morality and think there are some things that are just wrong and they will always be wrong. So even if all parties believe themselves to be benefiting from an exchange, it was nevertheless a wrong thing to do. For example, some people would point to the exchange of wild animals in the animal black market, or indeed prostitution, or organ sales, and say these are just wrong even if all parties feel that they benefit from the exchange.
YKN: On the animals point, then I can see that something could be wrong. But in my view it’s only because it may reduce animal welfare, it may be wrong to impose unnecessary suffering on the animals. I don’t go for the point that there’s something purely wrong by itself without any harm done to anyone or any animals. Then I think that’s invalid moral standing.
SK: But it’s a very widespread moral sensibility, one which would be prevalent in some societies rather than others.
YKN: I view such a position as incorrect, incorrect not in a scientific sense but in a moral sense.
SK: This moves us along to this question of universalism and whether there are universally applicable responses or policy positions with regard to some of the things you discuss in your book. Is there a universal right policy answer to these kind of questions, or does it differ from place to place depending on context?
YKN: Both. I think the universal one, if you put it in general principles – like, in my view I’m a welfarist, ultimately it’s happiness or welfare that’s of intrinsic value, so if you increase overall welfare then it must be good, so on this I think it’s universal. But on more specific policies then I’m not confident about the universality, for example one may think of the possibility of a very religious society which is very negative against certain market exchanges, so certain market exchanges would make them very angry, very hurt and so on, then allowing such market exchanges may not be good for that specific society. But on the other hand for all those societies that I’m familiar with, which include Australia, the UK, the US, Singapore, China, all these diverse countries, then I’m very confident that the policies that I propose in Markets and Morals are applicable to all these societies – including for example to use adequate pricing for water, electricity and car parking spaces, and I want to use more fines than imprisonment.
“In my view, the feeling of repugnance should fade into insignificance compared to the need to save lives.”
SK: But we can imagine a society where bringing more market exchanges into these areas is less desirable?
YKN: In some cases, the increased use of markets may not be desirable. First there is possible crowding out of intrinsic motivations and morality, such as altruism. If you are paid to do something then your original intrinsic motivation to do it without pay got eliminated. But there is also ‘crowding in’ where the use of this means people do more good. But apart from crowding out there’s another argument that may be taken into account which we already discussed, which is the feeling of repugnance, that if many people really feel bad just knowing that, say kidneys, are being transacted – buying/selling a kidney or other organs - make them feel bad then as a utilitarian you have to take that into account. But in my view the feeling of repugnance should fade into insignificance compared to the need to save lives, I think that should be more important even on purely utilitarian grounds. Overall I think there are not many cases where it is bad to let the market expand, and we need some regulations - I’m not a complete free market person.
SK: I do think that is a puzzle for the utilitarian perspective isn’t it? If happiness can be altered by the adoption of an alternative set of beliefs and then the restructuring of society and markets to suit those beliefs, then in a way we’ve stopped being utilitarians haven’t we? Because we’ve said ‘well, I’m going to make you happy later, once you agree with me’, which is different to making that person happy as they are. Does that make sense as an objection?
YKN: For me, I’m probably the most utilitarian in the world. I’ve found no one who is more utilitarian than me. So I will accept that if changing the belief or education or whatever can increase total net happiness in the long term, that’s good.
SK: We’ve strayed into an interesting area which is effectively about public opinion. In the UK right now, and I think in quite a lot of the world, there’s increasing repugnance about capitalism itself. One of the things that a lot of economic theorists are starting to think about is how to shore up public acceptance of markets and capitalism. So to some extent a morally-centred regulatory regime, even if the morality is arbitrary or irrational, but a morally-constructed regulatory regime is beneficial/desirable because it increases the prospects for the continuance of capitalism, it reduces the challenges to that system and it means the system can stay in place. I wonder if that’s something you’ve thought about, whether we need to pay some attention to the moral expectations of the public even when they’re ‘wrong’ about their moral intuitions, in order to preserve the system itself?
YKN: Yes certainly, as a utilitarian I have to take this into account. For example, people not only care about efficiency but also about equality and fairness, and maybe some other moral issues. In fact, I find that the questions of trying to avoid excessive inequality a very important issue, and likely the third most important public issue after environmental protections and peacekeeping – then avoiding excessive inequality could be the third most important issue in the world. Moreover, not only that we have to try to decrease inequality for fairness but simply for pure efficiency we also need some limitations of the market excesses like pollution. Excessive pollution’s external effects are bad, and we need to tax pollution.
SK: You’re in favour of Pigouvian taxation that reflects the costs of environmental degradation, but what do you make of the current strategies to mitigate these externalities used by mainstream economies? Things like cap and trade, are these capable of doing the job?
YKN: I’m more in favour of taxation instead of quotas or cap and trade, partly because of its long-term effects and possibly affecting morality as well, in that if you use quotas then the quotas given out should not be free. If you adopt appropriate pricing of the quota, if the quotas are set at the correct price then it can be shown they are the equivalent of taxation. The more you pollute in the past, you are entitled to more quotas, then this encourages doing bad things, if you did bad things in the past then you have more quotas which encourage people to do bad things. Bad for the long term, both for pollution and morality generally. So I think we should use taxation as far as possible, but there’s arguably one practical problem of using taxation which is that in principle how much should you tax? Some people argue against the Pigouvian tax on the particular difficulty of getting the right amount, but I have a proposal for most cases where we already are undertaking certain commitments to investment to reduce that pollution. If we are already spending, growing trees, to reduce CO2 in the atmosphere then we can estimate the marginal cost of reducing CO2 in the atmosphere to planting more trees, and this is easier to estimate. How much investment is needed to plant more trees such that you can reduce CO2 – one tonne of CO2? If it’s 20 dollars, then I argue that we should tax CO2 emissions at least by 20 dollars, then this is much easier to estimate. You don’t have to estimate the effect 200 years from now, you only have to look at what are the marginal costs of trying to reduce CO2 by one tonne.
“Later on, when I read something about reincarnation, I suspected I must be a reincarnation of Bentham - that’s where my full grown utilitarian view comes from!”
SK: We’re talking about the difficulties involved in accurately measuring the environmental impact of CO2. I wonder if you would like to talk a little bit about how we go about establishing a stabilised metric for human flourishing, or happiness. Are we good enough at evaluating human happiness, are we good enough at measuring it and recognising it in order to establish a policy framework and a market framework that serves it adequately?
YKN: I am a born utilitarian. I remember distinctly around the age of 6, when I was discussing issues with my brothers, I already had a more or less full grown utilitarian view, that of course each person wants happiness for themselves, but for a whole society it should be all the happiness for all people in need. So later on when I read something about reincarnation then I suspected I must be a reincarnation of Bentham, that’s where my full grown utilitarian view comes from! So for the whole society we should go for happiness for all. But I am also an animal welfarist where in my view we should avoid animal suffering, so the happiness we take into account is also of animal welfare not just human welfare. So in my view what is of ultimate value is happiness, and I think happiness is at least in principle measurable, not only measurable but also interpersonally comparable. However, in practice when you try to measure happiness and compare it with something that measures between persons then we face great difficulties, and existing measures of happiness are not very sophisticated. However, I have another paper, a 1996 paper based on the concept of perceptible increments of happiness, equitable across all different types of happiness and across different persons, and that this is equitable and accumulative. In my 1996 paper I use this concept of a ‘just perceptible increment of happiness’ and call that one unit, and then measure happiness using this ‘just perceptible increment’ of how many units, then the resulting happiness measure is more accurate and interpersonally more comparable.
“The last thousand dollars of consumption by a rich person is of negligible consequence in terms of happiness but one thousand dollars for a poor person could be very important.”
SK: I think this suggests that it’s possible to have an economy of happiness to the extent that sometimes your happiness could be traded off against other things that you value and will make you happy in other ways. But this I suppose also raises questions about inequality again, so a marginal or just perceptible increase in happiness will mean something different to a miserable person than it will to someone who is already generally very happy.
YKN: One of the reasons that inequality is important is due to this fact: diminishing marginal utility of income or consumption. Such that the last thousand dollars of consumption by a rich person is of negligible consequence in terms of happiness but one thousand dollars for a poor person could be very important, so we should recognise this and that’s one of the main reasons why we should decrease inequality.
The following is a selected reading list of some of Professor Ng’s most relevant work. His new book, Markets and Morals, is published by Cambridge University Press and available now.
NG, Yew-Kwang (1975). “Bentham or Bergson? Finite sensibility, utility functions and social welfare functions”, Review of Economic Studies, 42: 545-570.
NG, Yew-Kwang (1984). “Quasi-Pareto social improvements”, American Economic Review, 74(5):1033-1050.
NG, Yew-Kwang (1996), ‘Happiness surveys: Some comparability issues and an exploratory survey based on just perceivable increments’, Social Indicators Research, 38(1): 1-29.
NG, Yew-Kwang (1997). “A case for happiness, cardinalism, and interpersonal comparison”, Economic Journal, 107(445): 1848-1858.
NG, Yew-Kwang (2004). “Optimal environmental charges/taxes: Easy to estimate and surplus-yielding”, Environmental and Resource Economics, 28(4):395-408.
NG, Yew-Kwang (2007). “Eternal Coase and external costs: A case for bilateral taxation and amenity rights”, European Journal of Political Economy, 23: 641-59.
NG, Yew-Kwang (2019). “KEYNOTE: Global extinction and animal welfare: Two priorities for effective altruism” (Atkinson Memorial Lecture), Global Policy, 2019. https://doi.org/10.1111/1758-5899.12647