III. On work ethic *
Standard equilibrium theory looks at equilibria within given sets of rules which define markets. The size of any market is exogenously defined. However, the size of a market may change and sometimes may be changed by market participants themselves -- though not in their role as participants. One way to increase the size of the market may stem from efforts to influence other individuals' willingness to work. If it is possible to change their preferences as far as work/leisure choices are concerned the market may be expanded by exerting a moral externality. Inculcating other individuals with a kind of work ethic is a way to accomplish this task. Individuals who are under the influence of a work ethic work more, consequently earn more, and eventually have a higher demand for other individuals' products.
The latter individuals will regard enhanced demand for their own products as advantageous and thus should be willing to invest into inculcating others with a work ethic. However, it is hardly conceivable to live in a society with a work ethic and not to come under the influence of the work ethic oneself. As is sketched subsequently the moral externality will typically be bilateral and the emerging equilibrium inefficient in a certain sense.
James Buchanan has argued in a recent paper on work ethic (1989) that there is a certain tension between two fundamental ideas of economics. On the one hand, it is maintained that the division of labor is limited by the size of the market and that thus (other things remaining equal) any expansion of markets is in principle desirable. On the other hand, if equilibrium is reached across all markets then it is not desirable from the point of view of individual participants of the general game to expand any of the markets which together form the overall game.
If we consider the market a club for the exchange of goods then it should be advantageous for each member of the club to let additional members in if this offers additional chances to exploit the advantages of the division of labor (which in turn stem from exploiting comparative advantage or increasing returns to scale). Alternatively, additional units of leisure that club members -- L e. individuals who are in the club already -- would be willing to sacrifice in exchange for goods produced either by themselves or by other individuals could accomplish the same task. Such sacrifices also would expand the market and thus offer chances for further gains from pushing forward the division of labor in society. In equilibrium, however, the additional sacrifice will not take place. Club members will value leisure higher than additional products of their work (including the disutility of work) or whatever they could exchange either for their product or their labor.
In equilibrium all individuals are adequately compensated for their work input. They devote additional amounts of their time to work until a marginal unit of time spent on work rather than on leisure will render less utility than would leisure time. Thus, to go on further from this point would make an individual worse off even though all individuals might gain in terms of other goods than leisure. From his equilibrium position an individual member of the market-club will move on toward supplying more working hours only if his subjective utility of work is enhanced relative to leisure. This may happen basically in two ways (assume for convenience that individuals A and B are the only members of a "market-club"):
a. If individual B offers individual A better terms of trade than in the original equilibrium individual A may be willing to spend more of his time on work than in the original equilibrium. In this case the expansion of labor supply is induced by B's enhanced demand for A's goods (and thus in the last resort by B's lower preference for leisure). A is adequately compensated via the exchange of products. The movement follows strictly the given labor supply curve.
b. A's demand for B's goods is enhanced if A becomes more interested in goods (including those produced by himself) relative to leisure. This is not a movement along A's labor supply curve but rather a shift of the curve.
In conventional equilibrium analysis b cannot happen because the individual labor supply curves along with individual preferences form part of the rules of the game and thus must be taken as exogenously determined. They cannot be influenced by moves of the players in the game and thus are beyond strategic considerations. But, if we take a more dynamic approach to the market and look at it as an ongoing game then the rules of future subgames (including future preferences of the players) may be altered by former choices (or more technically speaking alternative subgames may be chosen; cf. for a formally related stimulating discussion Raub, 1989).
Taking a more general point of view there may well be chances to influence the preferences of other players -- though there must be some ultimate or original preferences which themselves are beyond any intervention from within the game. The terms of trade within a future market as well as the size of the future market (not a futures market) may in general be influenced by present investments. If future preferences of other individuals can be influenced by present investment of resources and if this investment will induce an increase of the size of the market then this may well pay in terms of the present value of future expected gains from trade.
This suggests that individuals may spend resources to diminish other individuals' preferences for leisure as compared to goods (and work). Individuals who spend resources for such purposes will be called "manipulators" henceforth while those who are subject to such influences will be referred to as "manipulatees". Manipulatees will show an expanded demand for goods (either produced by themselves or by others). The induced change in their preference for leisure will make them offer better terms. Manipulators who have invested in changing the preference for leisure in other individuals may hope to reap the fruits of their investment by reaching more favorable equilibrium positions in future time.
If manipulator B can induce a change in A's preferences such that manipulatee A, at the margin, is willing to give up more leisure for a given amount of goods then this is advantageous for B. Clearly the same argument would apply as far as the demand for goods emanating from individual B in his role as a potential manipulatee is concerned. Thus both individuals may have an incentive to invest into shaping the preferences of the other one.
More generally speaking, if the preference for leisure as compared to work can be influenced by a work ethic then members of a market club should have an interest that other individuals are inculcated with a work ethic. But, of course, the other individuals have good reason to train those who train them. After a work ethic emerged as outcome of such a possibly self-supporting process every member of the market club will work more and thus will expand the market beyond its original limit.
If we look at this result from the point of view of the original equilibrium the work ethic must be regarded as a public bad (this may add another reason for limiting competition to those offered in Frank 1985). It seems to push everybody beyond the limits of what he originally found to be his maximum utility choice of work (cum consumption goods) vs. leisure. It is the outcome of moral war. From a contractarian point of view one seems to be forced to draw the conclusion that a market club with a work ethic should be transformed by mutual agreement into one without such an ethic or if there are competing clubs one would expect from this point of view that individuals would join clubs with an ethic close to their own original preferences for work vs. leisure.
There may be no way to stop moral war reliably. However, there are some checks on moral war because it is not costless to go to war. Free riding in indoctrinating others may occur too. And, finally, in terms of some values it may even be regarded as desirable that a Pareto inferior outcome -- in terms of natural preferences -- emerges.
If we have different clubs that are competing and if membership in such clubs involves high sunk costs (as for instance membership in a particular nation and culture does) then all members, except for certain "marginal individuals" who are indifferent between loosing their investment and staying with their "home club", may have an interest in keeping their own club attractive. Under conditions of resource specificity inculcating others with a work ethic, thus, is a measure to defend the expected value of the future benefits of past investment.
Obviously there are free-rider problems as far as the production of the work ethic as a public institution are concerned. However, this need not necessarily lead to a situation in which no work ethic will be supplied. Those individuals who have a relatively high stake "in the game" should be willing to invest more than those who do not. Older individuals and those with skills that are more idiosyncratic to a certain market club or community should be expected to invest relatively more in activities that defend the work ethic than other individuals, etc. (cf. on this exploitation of the "big" by the "small" also Olson's classical argument in 1965).
Nevertheless, and even though we may expect that moral entrepreneurs will emerge, free riding will be a serious problem if the work ethic has to be produced on the scale of a large market. Further, even if the work ethic is supported by publicly financed measures like propaganda the effects on shaping individual preferences may be marginal. If we consider the experience of socialist societies, which tried to alter individual preferences for leisure vs. work choices, prospects for expanding the market by ethical indoctrination may seem rather dim.
Again, one has to take into account that individuals are members of subclubs of the more comprising market club. Thus, they have special incentives to invest into activities that weaken the preference for leisure that some of their more close co-workers might have. This tendency will be supported by the fact that most of the exchanges along several dimensions of the exchange space may take place with the same individuals. (The negative experience of the socialist societies may be partly due to their inclination to operate on a large scale and thus to forget about the micro -foundations of macro-behavior.) Given the way human beings are, these activities will have spill over effects from subgroups to the more inclusive club not only insofar as a higher demand and supply of goods will emanate from these subgroups. It will also be true that in the more comprising group the values of the work ethic will be supported by subgroup experience. Individuals who are indoctrinated with certain values in a subgroup will naturally tend to generalize them to a broader context.
If we take nations to be more or less closed clubs competing in a general power game the wealth indirectly created by the work ethic may offer additional ways to invest into military equipment etc. and thus to enhance power. But, even if we neglect this obvious reason that may render a work ethic a public good within a nation and focus entirely on the effects of the work ethic under conditions of peaceful competition between different clubs which all exploit the advantages stemming from the division of labor (which may include a competition between market-clubs and firmclubs etc. too), there seem to be some reasons why individuals might tend to take part in inculcating work ethic. As these efforts would be rooted in an interest to defend one's prior investment against devaluation it seems still to be true that general "work ethical disarmament" -- if viable institutional controls of keeping such a disarmament agreement were conceivable -would be in everybody's interest. In that case the work ethic may have a strong influence on economic performance, but not for the better but for the worse from the point of view of the original individual values.
It seems that a fundamental issue of all economic methodology creeps up again here. Preferences are taken as given. Even if we allow for some amount of preference change within a model, we still would evaluate this change in terms of a prior or higher preference order. But it is in no way clear how the utility representation of the higher order preference is related to the classical concept of utility with its connotations of pleasure and individual welfare. If we allow for meta-preferences to preference orders then the meta-ordering could also be represented by a utility function (provided that it would fulfill certain formal axioms). The latter utility may be quite independent of any hedonistic measure of utility in terms of pleasure and pain or well-being. From the point of view of a meta-ordering, individuals may well argue that they are better off in a society with work ethic. They are better off in terms of their more comprising value scales even though they may suffer a loss in terms of "hedonistic utility" in the classical sense. This view is in no way implausible. Well-being, pleasure, etc. may not be the only relevant dimensions of evaluation.
The foregoing common sense considerations do not answer all relevant questions. Multidimensionality of evaluation can occur at any point in time and values may change in the course of time. Which of conflicting utility functions is the relevant one: a past, a present, or a future one? If the individual who is endowed with new preferences does not feel any utility loss after the new preferences are adopted can one still say that there is a utility loss? From a strictly subjectivistic point of view, intra-personal utility comparisons between future and present selves may be almost as problematic as inter-personal comparisons of utility.
These considerations are of special importance as far as the work ethic is concerned. After the work ethic is adopted leisure becomes less valuable. Even though the utility derived from leisure may be smaller ex ante no loss may be felt ex post or while playing the marketgame.
One might argue that for any choice only present evaluations can be motivationally relevant. Then only the present evaluation of future evaluations is of importance and not the future utilities themselves. For the decision maker who is choosing his own future utility functions (or selves), the status quo is in this sense definitely special. It is also special for any person who accepts that externalities on other individuals should not be exerted. As long as we want to change the evaluations of other individuals by means of argument and not by imposing our values on them we necessarily have to appeal to their values.
From this point of view, status quo or present preferences play a special role at any point in time. Everything has to be evaluated in these terms because the addressee of the arguments will decide according to his values. If, on the other hand, we are willing to exert a moral externality on other individuals without their prior consent, if we are going to change their preferences regardless of whether they like it or not then the special status of existing utility scales vanishes.
From these considerations it can be seen that Buchanan's assertion that the status quo is special is directly related to his contractarianism and the complementary assumption that changes in other individuals' behavior should be brought about by argument instead of causally influencing them. As long as we confine the scope of legitimate action to the realm of argument, the decision is left to the addressee of the argument and his status quo criteria and preferences are necessarily of special importance. At the very moment that we allow for other actions than speech acts that adopt the format of an argument the situation changes. Persuasion does not belong to the category of "argument" and neither does any moral externality.
For a manipulator who is planning to exert a moral externality the status quo is not special. Of coures, the manipulator has to proceed according to his own utility assessments. But, if he is willing to take into account the values of the manipulatee at all it seems quite arbitrary to prefer a present value scale of his victim. If, for instance, the manipulator changes the value scale of an individual for whom he has sympathetic feelings then the future utility scale of the other person seems to be a more plausible candidate. Accordingly a sympathetic choice would be one that induces a scale that is good for the other individual -- good from the present point of view of the chooser of the utility who takes into account the future situation of the manipulatee who will be endowed with the imposed value scale.
Very general questions about the relationship between preferences and so-called meta-preferences, on the one hand, and the dichotomy between short run and long-run choices, on the other hand, emerge here. It may well be that a rational individual should use virtually alternative utility functions for these types of choices. This would imply that in a sense we would deal with two different individuals in each person -- one is the relevant unit of decision for in-period choices and also for within rule choices, the other would be the addressee of proposals for rule or constitutional choices extending over longer periods of time.
This may be sufficient to illustrate how complicated the relationships between ethics and economics are. Even if we can form a straightforward economic theory of moral institutions, based on moral externalities, there still are fundamental value problems to be solved. Even if we accept that only hypothetical imperatives of prudent behavior in the pursuit of given individual ends, aims or values can be justified it is still in no way clear which aims, ends or values we should regard as point of departure. "Work ethic" seems to form a particularly interesting case because many people -- in particular many economists -- intuitively would regard a work ethic as a public good -- like bridges or streets that also increase the size of markets -- while at the same time there seem to be strong arguments that it might be a public bad.
Whether in the last resort we will regard work ethic as a public good or a public bad depends on some fundamental decisions about the ultimate values that we are going to apply. If we ask how to decide about the ultimate values we will again need some values for this decision. Eventually, at some ultimate level, we have to make a decision about how we conceive of theoretical exchange itself. Is that game fundamentally persuasive or is it argumentative? Is moral argument a moral externality itself, or not? Since the Platonic dialogue Gorgias most philosophers seem to lean towards the latter alternative and economists like Buchanan would do the same thing. However, the strict Hobbesian instrumentalist may accept that ultimately even issuing theoretical convictions may be driven by practical interests of getting one's way. Even moral theory may be a part of moral war. Still, complete moral disarmament may be impossible and thus there may be nothing we can do about it except for hoping that moral war may have consequences that are favorable from the point of view of most individuals' interests.
<<References>>
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Kliemt, Hartmut: Papers on Buchanan and related Subjects. – Munich (Accedo Verlagsgesellschaft), 1990: p. 61 – 71. (Studies in Economics and Social Science (SESS), Vol. 1 (1990)) |
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