Symposium on Free Market Fairness, Economics

Reply to Elizabeth Anderson: Part I, Commercial Liberty

[Editor’s Note: This essay is part of a symposium on John Tomasi’s Free Market Fairness. For an introduction to the symposium, click here. For a list of all posts in the symposium, click here.]

Elizabeth Anderson opens her post by laying out the distinctive normative commitments of market democracy. She then announces: “I’ll sign on.” On first reading that sentence, I thought: “Coool. Elizabeth Anderson has come aboard the ice-breaker FMF.” But then, starting with her second paragraph and through to the end of her post, Anderson vigorously and comprehensively assails the institutional forms of market democracy. And I thought to myself: “What’s this? Jumping ship so soon?”

After studying Anderson’s essay, however, I find myself hopeful again. For I believe that—at the level of fundamental moral principle, and at the institutional level too—Anderson has no good reason to abandon the FMF ship. In what follows, I invite Anderson to take a second look around the market democratic vessel and, perhaps, to stay aboard a little longer.

Let’s start with the points on which Anderson (agrees that she) agrees with Free Market Fairness. Justice should focus not just on outcomes but should be sensitive to the moral importance of people producing those outcomes for themselves. The economy is an important domain of agency. In a just regime, the rules of economic life should provide individuals with a rich set of opportunities to engage in economic activities according to their own preferences. This includes recognizing a right to private ownership of productive property. Thus, “At the level of ideal theory, high liberals made a serious error in discounting the importance of private enterprise and economic agency.”

So, unlike Samuel Freeman, Anderson has struck free from orthodox Rawlsianism and has stepped forward onto the deck of market democracy. This is brave and serious stuff from the esteemed holder of the John Rawls Collegiate Professorship of Philosophy and Women’s Studies at the University of Michigan. Market democracy welcomes you. But the question raised by your essay is: can we convince you to stay?

Anderson (thinks she) has significant objections to the market democratic research program that I set out in Free Market Fairness. While accepting my claim that basic economic liberty should be thickened beyond the orthodox Rawlsian set, Anderson argues that basic economic liberties should be heavily regulated. She argues for these regulations in two broad domains: I) commercial transactions, and II] the workplace (note: these are my labels, not Anderson’s, and the relation between these domains is complex and partially overlapping, but leave all that). In this post, I consider the first of these arguments.

Anderson’s argument:

I. THAT: commercial transactions within market democracy should be heavily regulated.

I.1) The exercise of some categories of basic liberty, unless that exercise is heavily regulated, objectionably impinges upon the liberties of other people and/or threaten them serious harms (for example, freedom of movement is basic but nonetheless we need extensive traffic rules).

I.2) The exercise of the economic liberties of commerce, unless heavily regulated, will impinge upon liberty and/or threaten them with serious harms.

I.3) Thus, commercial liberties of market democracy, while basic, should be heavily regulated.

There is an ambiguity about the meaning of “heavily regulated” that runs through the argument. In premise I.2), I shall interpret “heavily regulated” to mean more heavily regulated than on the classical liberal approach I recommend in Free Market Fairness. Only by being interpreted in that way could Anderson’s argument generate an objection to me. Now, holding her to that interpretation, I affirm I.1) but deny I.2): the exercise of economic liberty, regulated along the classical liberal lines I propose in FMF, does not objectionably impinge on the liberties of others and/or threaten them with serious harms.

Anderson offers a list of commercial horrors to illustrate the “countless ways of conducting business [that] reap gains for some while imposing unjust costs on others.” I agree that business activity sometimes imposes unjust costs on others. Notoriously, business owners sometimes cheat their customers, their competitors, and innocent bystanders too. But that is not the issue here. The issue is whether the business practices and outcomes that Anderson condemns are also condemned by my classical liberal scheme. And they are. The predatory practices that Anderson condemns, market democracy condemns with her.

On my classical liberal approach, for example, fraud is prohibited. So no marketing colored water as a cure for cancer. And if a high-powered corporate manager fails to satisfy the performance standards specified in his contract, then the board members better not vote to give him a fat bonus anyway just because he’s a friend (or, worse, because he’s paying them a kick-back). Similarly, if you sell me sausage labeled “organic turkey and tarragon,” then you better be darned certain that its not stuffed with something else. Further, economic contracts, to be valid, must satisfy (reasonable) standards of “unconscionability.” So no sneaking obscure loopholes onto the backs of insurance policies, or suckering people into signing loan-agreements with dirty tricks hidden in the fine print. And businesses certainly must not violate the property rights of other people. So no dumping your toxic waste in my backyard, or into the river from which I drink.

Not all of the cases on Anderson’s list have simple solutions under my classical liberal conception (no surprise, since no system of property regulation has ever offered simple solutions for all the problems of economic life). For example, what exactly should count as “insider trading?” And while classical liberals certainly object to government policies like those that encouraged the recent housing bubble and banking bust, the precise character of classical liberal regulations and institutions in the areas of monetary policy and private banking are likewise matters of ongoing debate.

The point remains. After setting out the list of practices to which Anderson objects, she writes: “without extensive regulation, markets happily accommodate such negative-value-added business plans.” Again, Anderson and I agree that businesses do sometimes engage in these objectionable practices. So my market democratic approach enthusiastically supports Anderson’s claim that the rules regulating economic liberty should forbid (and, I would add, should severely punish) parties that engage in such practices. Clichéd but true: classical liberalism is at bottom pro-market, not pro-business. The commercial regulations of market democracy seek to channel commercial activity so that the whole system tends to provide an ever-wider range of (quality) products to ordinary consumers at the lowest possible (non-predatory) price, while creating opportunities for (honest) persons to build (jobs creating) businesses.

So, regarding the regulation of commerce, Anderson’s post offers no reason for her to be unhappy aboard the market democratic ship. Your enemies are my enemies, and your friends are my friends too.

I do not mean to be too pat about the convergence of our views. On these questions of commercial regulation, there is remains considerable room for disagreement. For example, the doctrine of unconscionability that I mentioned can be interpreted in different ways. Personally, I believe that respect for citizens as responsible self-authors requires that we interpret that doctrine very narrowly. Thus I believe that citizens signing up for insurance policies, or taking out home-improvement loans, bear a heavy responsibility to ask questions about the contracts and to think carefully about whether they can fulfill their obligations even if their financial future turns out to be less rosy hoped. Anderson, I suspect, might agree with that idea in principle but still think respect for persons requires a slightly broader reading (I am just speculating here, of course). But differences of emphasis such as these are no cause for alarm. Market democracy is a (nascent) research program. One of its advantages, I think, is that it makes room for disagreements among shipmates equally committed to the foundations of the view.

Note: In presenting this first argument, Anderson also raises a question about the most sensible way to protect and regulate basic economic liberties.  Are basic economic liberties best protected as constitutional rights, as I suggest in FMF, or by some other institutional strategy, constitutional or otherwise? I share Anderson’s interest in this question of design. What’s essential to market democracy, recall, is that the (core) economic liberties be protected in a way appropriate to the priority they have as basic rights. So I am open to considering arguments in favor of alternative (e.g., non-constitutional right-entrenching) institutional strategies for protecting the basic economic liberties. The only requirement from market democracy is that such strategies must ensure that the basic economic liberties protection of the other sorts of liberal basic liberty. I’ll just say: this seems to me a daunting requirement.

But what about Anderson’s second worry about market democracy, the one about the regulation of the workplace? I find Anderson’s arguments here more challenging. In the end, though, I’m hopeful that she will find room on the market democratic vessel for her views on this topic too. In my next post, I explain the grounds for my hope.

 

  • Mark Pennington

    John, good argument – but there is another line of response here. Anderson’s post details a litany of supposed market failures – though she doesn’t refer to any of the literature which indicates that markets are actually rather good at dealing with information asymmetries and many, though not all, public good problems. More important, having outlined the abuses that can arise through the exercise of economic liberties she has nothing to say about the information asymmetries and externality dynamics -massive rent seeking and special interest capture, bureaucratic and political monopoly etc. that frequently result from the exercise of political liberties. So absent is any consideration of these issues that one would think that public choice theory had never been invented. Of course, if we are speaking purely in terms of ‘ideal theory’ then we are supposed to set aside public choice/motivational type issues – giving the benefit of the doubt to our opponents ‘ideal system’ – but that is precisely what Anderson fails to do in her post by painting the very worst possible view of behaviour within a market economy – and implicitly assuming the very best possible view of politics and government regulation.

    • John Tomasi

      hi mark, i certainly agree that we need to apply the same standards of skepticism/optimism when evaluating the institutional forms we champion as we employ when evaluating the forms we wish to condemn. even when we work in good faith, however, its hard to do!

      there are disadvantages to strong idealization of the sort I run in FMF, as I am well aware. one of the advantages, tho, is that strong idealization (i.e. setting descriptions of both sides’ ideological champions that bump up against the upper boundaries of the possible) provides a pretty powerful tool that enables us to compare like-to-like. Thanks for you comment.

  • Chris

    While I agree for the most part with the ideal theory, I do have a practical objection.

    “So my market democratic
    approach enthusiastically supports Anderson’s claim that the rules regulating
    economic liberty should forbid parties that engage in such practices.”

    The problem I have in this
    statement is the ability of tort law in this country to prosecute and punish
    those who violate this maxim. Any market system has to have a judicial system
    that is up to the task of compensating the victims of the inevitable cheats. So
    (in my opinion) any reformulation, or purification, of the “market” has to come with an update to
    the judicial system. In my opinion, the judicial system as it currently operates, inadequately compensates victims for wrongs committed by participants in the free market.

    • martinbrock

      Torts are all over the map, seems to me.

      In one case, a man is severely injured by a forklift on the job. He spends years seeking workmen’s compensation benefits from his large, corporate employer, and meanwhile he is practically unemployable because his claim is a matter of public record. Employers routinely check these records before hiring, because hiring such a man can raise an employer’s workmen’s compensation insurance premium.

      In another case, a woman wins $900,000 from a dentist from whom she possibly contracted genital herpes after casual sex. The woman could hardly prove that she contracted the infection from the dentist, after meeting him at a dating website, but she could prove that he knew he was infected and didn’t inform her.

      I don’t see how a system of common law, empowering common juries to decide these cases, can avoid an outcome like the latter. Some judges will permit this woman’s claim, and some juries will find for her. The former suggests a problem with the workmen’s compensation insurance system, but the man in question ultimately received compensation for his injury as well as disability benefits from the state sufficient to retire for the rest of his life at 47 with a standard of living that 99% of working people on Earth do not share.

      • John Tomasi

        hi martin, have you seen Timothy Sandefur’s book *The Right to Earn a Living*? it does not offer a solution your dentist case (!). but it does suggest some patterns on the map. I very highly recommend that book. thanks for your comment.

    • John Tomasi

      Thanks Chris, re the current system in the US, I strongly agree with your points. i’d just add that another at least equally egregious failing of current system is the non-action re government takings. so there are failures to defend infringements of economic liberty that come from the actions of private and of govt agents. but i strongly endorse your important point that: “Any market system has to have a judicial system that is up to the task of compensating the victims of the inevitable cheats.” Nicely said.

  • You write: “Further, economic contracts, to be valid, must satisfy (reasonable) standards of “unconscionability.””

    I wonder if you could say a bit more about what you mean by this. The examples you give following this sentence both involve what has been called procedural unconscionability. That is, the problem with an agreement involving hidden clauses in fine print has to do with the process by which the agreement was made, not the substance of what was agreed to. We worry that if a clause is buried in fine print, the relevant party will not be aware of it and thus will not have knowingly consented to it.

    But sometimes the law or commentators on the law seem to utilize a purely substantive notion of unconsionability. That is, it is sometimes held that the substance of certain agreements is so objectionable (one-sided, unfair) that it must not be enforced, even if no procedural defect can be found.

    So, my question for you is, does market democracy hold that procedural defects are necessary for a valid application of unconscionability doctrine, or does it hold that in some cases substantive defects are sufficient?

    [My own view, fwiw, is that the former view of these views is the correct one, and I’m guessing that this your view too, based on what you say about favoring a “narrow” interpretation. But I’d be interested to hear either way.]

    • John Tomasi

      hi matt, yes, i am thinking of procedural unconscionability. (btw, there’s a useful discussion of this in Tim Sandefur’s wonderful book, *The Right to Earn a Living.* I highly recommend that book for anyone interested in what I call “liberties of working.” Great stuff.
      Regarding Anderson, I’m not sure what she would think here. I think substantive readings of unconsionability run the danger of failing to respect citizens as responsible authors of their own lives. Here, as elsewhere, we must take care not to fall into economic paternalism.

  • eselpee

    The average consumer is powerless to protect herself against unethical corporations. I would like to know how libertarians respond to government regulations that we need to protect us.

    “Part of the problem is outdated laws governing the handling and use of toxic chemicals. Currently 1976’s Toxic Substances Control Act is the law of the land in regard to controlling the distribution, use and disposal of toxic chemicals nationwide. But EWG and other groups complain that hundreds of thousands of new chemical formulations are unleashed on an unwitting public every year via America’s store shelves because the federal government assumes new products and ingredients to be innocent until proven guilty. These critics would like to see the federal government take a more proactive role in approving new substances for use in consumer products, not to mention residential and workplace environments (http://www.scientificamerican.com/article.cfm?id=chemicals-umbilical-cord-blood).”