Agriculture and Food in the 21 st Century

Morals, Markets and Policies: Views with a Focus on Food and Agricultural Markets

Ulrich KOESTER

Abstract

Morality and markets are widely held to be two unrelated concepts or, if related, then their interaction is considered more negative than positive. This perception has contributed to the bad esteem of economists. This long-term tradition of neoclassical economics – which is still the mainstream in economics – posits that economic agents, although they may be highly selfish, nevertheless offer society significant benefits. Agricultural markets’ functionality is often in the centre of criticism and food scandals seem to support the view that economic agents do not serve the common interest.

The goal of this article is to clarify the relationship between morality and the outcome of market forces under specific conditions on the one hand and real world conditions on the other. It emphasizes that a clear definition of morality is essential to the accurate assessment of market functions from a moral point of view. Moreover, a positive relationship will prevail only under specific market functioning conditions which do not exist in most markets, and are particularly absent in agricultural markets. Based on these findings, we explain why agricultural markets are exceptional and not always in line with commonly held moral understanding.

Because agricultural markets require specific governmental interventions to provide for incentive compatibility of private agents, the government must create an environment in which selfish actions are considered acceptable from a society’s point of view. The second last section of the paper proposes a design for EU agricultural policy which might perform in harmony with the morality of a given society. It argues that policymakers who behave like private entrepreneurs must be forced by a specific institutional framework to make decisions that are best for the public at large. In the final section, we discuss selected EU agricultural policy changes introduced for fiscal years 2014 through 2020 from a morality point of view.

Acknowledgements

The author thanks M. HARTMANN, Bonn, W. BRANDES, Göttingen, B. SCHULZE, Kiel and A. PELLILLO, Tbilisi for valuable comments on an earlier draft of the paper. The article gained significantly from many fruitful discussions with R. MÜLLER, Kiel.

Introduction

During the last decade, public trust in markets in general – and in financial and food markets in particular – seems to have deteriorated. Food scandals feed mistrust and strengthen the commonly held belief that markets support immoral behaviour, leading to an increased call for governmental intervention despite a widespread mistrust in politicians. Strangely enough, not long ago, at the time of the collapse of the socialist economies, the benefits of a market economy were ← 13 |14 →

praised. The reputation of economists has also deteriorated as mainstream economists continue to stick to their models, assuming that rational decision makers react to market prices while simultaneously contributing to the economy’s overall welfare. This article will clarify relationships between morality and the outcome of market forces under specific conditions on the one hand and under real world conditions on the other. Based on these findings, we will explain why agricultural markets are exceptional and not always in line with commonly held moral understandings. Its second last section is devoted to the design of an agricultural policy which might perform in harmony with the morality of a given society. It argues that policymakers who behave like private entrepreneurs must be forced by a specific institutional framework to make decisions that are best for the public at large. The final section discusses selected EU agricultural policy changes introduced for fiscal years 2014 through 2020. A summary will close the article. It has to be emphasised that the reasoning focuses mainly on private goods; the problem of public goods is only taken up in the last sections which deal with policies.

Definition of Morality

Unfortunately, no generally accepted and controversy free definition of morality is available. However, a clear definition of morality is essential to any investigation of the relationship between morality and markets. Therefore, it is quite clear that this definition must be based on personal judgment which will, of necessity include value judgments.

It is agreed that morality is a reflection of a given society’s norms which expresses its values based on a system of rules and moral guidelines broadly accepted by that society. Therefore, morality affects and may constrain people’s social behaviour (GRIFFITHS et al., 2001 and BARON, 1998).

Morals serve as the rules of the game which, whether formally laid down in legislation or evolved over time in the form of unwritten tradition. Based on acceptance of this definition, there is no “bad” or “good” morality; rather morality is merely a description of a society’s accepted norms (GERT, 2012). It is quite clear, then, that these norms differ across societies and will change over time as they are partly determined by culture.

Individual behaviours can be classified as morally “bad” or “good” depending on the norms of the society under consideration. Whether a person’s behaviour is considered morally acceptable or immoral depends on the judgment of the society of which that person is a part. As norms differ across societies and over time, a specific behaviour may be judged morally good by one society, yet bad by an ← 14 |15 → other. Furthermore, a given society may view the same action differently at different times, depending on how that specific society is defined. For example, it might be merely a group of people who share certain values which are not necessarily identical with those of the population in a specific country. The rural population may adhere to different values than those of the urban population. People belonging to different religious groups may favour still different values. In general, one person’s act can be morally good or bad only if other people are affected.

Even in cases of general agreement on moral standards within a given society, specific criteria which can be used to judge whether an individual has acted in a bad or good way from a moral point of view must be defined. In defining morality, philosophers seem to agree on two different and important elements by which morality may impact an individual’s action:

•A person may be motivated to do good things in line with moral standards of a given society and may select, from among the possible alternatives, those which are compatible with his motive.

•Moral people behave according to the expected consequences which are in line with the moral codes of the society where they live.

According to the school of deontology, motives are crucial for judging moral behaviour. Kant, one of the scholars of this school, postulates that an individual’s motives should act as a personal framework for her/his actions even if those consequences are not appreciated by other members of society. Of course, this definition includes a strong value judgment which may not be shared by many people. Hence, this criterion is somewhat modified by the school of moral relativism which, in principle, agrees on the dominance of motives, but also takes into account the action’s consequences. Finally, in contrast to the other schools, consequentialism (or teleological ethics) focuses only on an action’s consequences. Whether the individual actor must intend for others to judge her/his action as morally positive or whether only the consequences matter, regardless of his motive, may be open to discussion.

Economists may argue that today’s world is too complicated and, therefore, the individual cannot always anticipate consequences. Well-intended actions by do-gooders may lead to bad consequences, while very selfish actions may result in outcomes which are highly appreciated by society. As early as 1714, Mandeville was one of the first authors to emphasise that private vices form the basis of overall welfare (quoted by SEDLACEK, 2012). In fact, do-gooders may actually place hardship on the backs of others; hence, we must accept that well-intended actions may lead either to socially desired results or to undesired ones. In contrast, however, highly selfish actions may also lead to either good or bad results. ← 15 |16 →

Economists tend to be more practically oriented, and mainstream economists trend to emphasize the consequences of individual actions independently from the motives of the actor and the intended consequences. It does not matter why an individual acts in a specific way. Whether it may be self-interest or altruism, only the outcome is important. Whether the action is considered good or bad depends on how other members of the society value the outcome. If they rate the outcome as acceptable from their point of view, the individual’s actions are considered morally good.

It should be noted here that this definition of morality does not imply that any activity which leads to Pareto improvement – as defined by economists – is morally good. Pareto improvement is implicitly based on socially independent individual utility functions which include only material welfare. However, it might well be that although an individual’s income is not affected by other people’s actions, that individual may, nevertheless, disapprove of the specific actions of others if distribution has been affected. Hence, the definition of morality just put forward does not imply that individual welfare is socially independent. People may even be concerned about actions of others, even if their material welfare is not affected, because they consider the enrichment of specific people as unfair.

If we accept – in accordance with mainstream economics – that only the consequences of actions, and not their motivation, are important, it may well be that an individual who acts only in his own self-interest may inadvertently act in the interest of others. However, this coincidence will occur only in cases of incentive compatibility, meaning that incentives for individuals should lead to actions and consequences which are in line with the common interest. Hence, in the following, we must evaluate the conditions under which markets lead to incentive compatibility, whether these conditions hold true in the real world of markets in general, and of agricultural markets in particular.

Conflicts between morally-constrained and market-oriented behaviours may disappear, either partly or completely, if a) one agrees with the definition of morality as put forward by economists, and b) if it can be shown that the actions of those who serve only their own self-interest and react to market incentives may lead to positive consequences, even from a moral point of view.

This leads us to the first interim conclusion: Whether markets and morals can engage in a happy marriage depends, first of all, on the definition of morality. The consequentialist position must be accepted. Moreover, it must be assumed that whether the consequences were intended or unintended is irrelevant.

However, even if the economists’ definition of morality is accepted, it cannot be taken for granted that, from a morality point of view, markets can always be rated positively. This problem will be investigated in subsequent sections. But first, the relationship between morality and the effects of markets will be analysed. ← 16 |17 →

The relationship between morality and the functioning of markets in general

Mainstream economists like to refer to the father of modern economics, Adam Smith (SMITH, 1776), whose well-known example posited that society may even be better off if individuals act selfishly. However, he did not say that, under all market conditions, selfish actions would always lead to consequences which were appreciated by the society at large (see in particular SMITH, 1759). Modern economics have proved that, under certain conditions, selfish actions guided by market incentives will lead to a social optimum where nobody’s position can be improved without negatively influencing the welfare of others (DEBREU, 1952). It should be noted that the findings of so-called neoclassical economics are based on specific assumptions used in mathematical models. It is widely accepted that markets in the real world may not lead to the desired outcomes.

Neoliberal economists have defined certain tasks for the state so as to establish an enabling environment for possibly acceptable market outcomes from the point of view of the society at large. This school of economics accepts the possibility that the market may fail and, hence, that there is a role for the government in reducing the impact of such failure. However, the danger of policy failure is also highlighted.

The neoclassical school focuses implicitly on one specific element of morality – individual freedom – including selection of the best alternative among many choices. It is probably true that most people value individual freedom very highly, but some individuals may prefer a degree of paternalism in exchange for more job security, more equal distribution of income and less pressure to change. If one accepts the stated axiom, that individual actions are morally good only if they are good from the society’s point of view; one cannot assume that selfish actions can be accepted as morally good per se.

The following section discusses the interdependence between morality in a society and the functioning of markets. Figure 1 shows the importance of morality for the functioning of markets and the importance of functioning markets for morality within a society.

Markets are used to coordinate individual actions, facilitate cooperation and generate productive interactions. Hence, functioning markets have the same task as does the morality of people: both constrain individual behaviour and make it predictable. It is assumed that trust is the main element of morality which is of importance for the functioning of markets. Individuals may be trustworthy if they are honest, reliable, and punctual. Individuals may trust in the stability of the political and economic system if they trust policy makers. ← 17 |18 →

Figure 1 shows that morality contributes to the reduction of transaction costs, giving rise to the evolution of markets. Exchange of goods is generally based, either explicitly or implicitly, on a contract, even if not in a written form. Partners in an exchange trust in the honesty of the partner with respect to the quality of the product offered and in the behaviour of the partner of exchange. It is expected that the partner of exchange will fulfil his commitments completely and on time. This point is of special concern if the exchange involves agricultural product and factor markets.