Reasons for Moving beyond Welfarism
A strict welfarist approach leads naturally to an emphasis on the Pareto criterion: that the only case in which one can be sure that a change is welfare-enhancing is when it makes at least one person better off without making anyone worse off.
To go beyond that requires making interpersonal utility comparisons, or the introduction of some additional criterion that goes beyond welfarism. This may be unproblematic for the theorist, who can conclude that equilibria are, or are not, Pareto- efficient. However, in practice, outside the world of abstract, simplified models, the Pareto criterion typically provides insufficient guidance. This may not necessitate going beyond welfarism - for example, it might be possible to adopt a utilitarian approach - but in practice it usually does, for several reasons.2.1 Awareness That Other Values Matter
Economists have argued that, at least in Western, democratic societies, individualism and the Pareto criterion are generally accepted values. Other values are more controversial. However, when deriving normative conclusions about policy and social decisions, economists have frequently introduced other values including:
• a fair distribution of resources (Pigou discussed in Chapter 4, Samuelson in Chapter 8, Musgrave in Chapter 10 and Arrow in Chapter 11);
• freedom, autonomy and liberal values (Hobson discussed in Chapter 2, Hicks in Chapter 7, capabilitarianism in Chapter 12 and Sen in Chapter 13);
• fulfillment and quality of life (Hobson discussed in Chapter 2, Marshall in Chapter 3, capabilitarianism in Chapter 12 and Sen in Chapter 13);
• the formation of human character (Ruskin discussed in Chapter 1, Hobson in Chapter 2 and Marshall in Chapter 3);
• the intrinsic importance of the environment (Ruskin discussed in Chapter 1, and many environmental economists described in Chapter 9);
• the provision to everyone of primary goods or needs (Pigou discussed in Chapter 4 and Rawls in Chapter 7);
• equality of opportunity and non-discrimination (Hobson discussed in Chapter 2 and Arrow in Chapter 11).
It is clear why such issues have been unattractive to theorists preferring to remain neutral over values. These issues are controversial, often hard to define precisely, and they raise questions about how different values are to be weighed against each other. One reason why it is difficult to weigh these aims against each other is that some of them are linked to means rather than ends. Provision of primary goods is arguably a means, whereas utility and quality of life are ends. Other aims, such as equal opportunity, rights and liberal values will be means for some people and ends for others. The multidimensionality of some of these ends also poses problems, as does the requirement, common in a policy context, that decisions should be based on objective information. Problems also arise because of interdependencies in society and the different ways in which this can be conceptualized. For example, where Hobson and Marshall saw society as an organism, Pigou, Musgrave and environmental economists focus more narrowly on interdependence that can be captured through concepts of public goods and externalities.
However, even if these aims pose great theoretical and conceptual problems, they are often inescapable when offering advice on practical problems, in specific political and social contexts. For example, as Medema showed in Chapter 9, environmental economists debating the implications of the Coase Theorem in the 1970s could not avoid confronting the question of whether it was fair to force victims of pollution to bribe polluters to reduce emissions. In late-Victorian England, on the other hand, the evolution of human character was an issue that would often be raised when policies were discussed and it was common for economists to take a paternalist attitude toward the working classes in a way that would be unacceptable today. Ruskin (discussed in Chapters 1 and 2) imposed values closely related to his views on art and was clearly paternalist. Marshall’s position was different, but, as Nishizawa’s discussion in Chapter 3 shows, when discussing policy, he attached great importance to the elimination of poverty and securing the material means necessary for all people, including the working classes, to have a full life and to develop their human faculties.
This dependence on the specific political and social context accounts for the great diversity in case studies in the different chapters. However, beneath this diversity there remain important common features.2.2 Difficulties with Getting Reliable or Meaningful Information
Pigou (discussed by Yamazaki in Chapter 4) assumed that measurement was possible for what he called economic welfare - that part of welfare that could be measured in terms of money. This implies a neat separation between the realms of economics (economic welfare) and ethics (non-economic welfare). However, as Suzumura (Chapter 7) explains, there are serious operational problems that make it difficult to draw a clear distinction between what belongs to economics and what belongs to ethics - between facts and values. Pigou’s monetary test, the idea for which he took from Marshall, sounds attractive but is in practice difficult to apply, raising serious problems for welfare economics. Suzumura (Chapter 7) recalls Putnam’s opinion (2002, p. 44): “The worst thing about the fact/value dichotomy is that in practice it functions as a discussion-stopper, and not just a discussion-stopper, but a thought-stopper.” A similar claim was made by Samuelson (see Chapter 8) when he argued that utility and welfare were two distinct concepts, each requiring different types of information. For example, the difficulties involved in comparing different individuals’ utilities make it difficult to even conclude that trade is better than no trade whenever trade makes one person better off and another worse off.
2.3 Observed Problems with Market Outcomes
The theorist typically works with abstract goods, implying that there is no basis for privileging some goods over others. In contrast, when engaging with specific practical problems, in which goods are identified, it may become clear that certain goods are more important than others. For example, it may become clear that certain goods need to be provided in a society in which there are social interactions and unavoidable externalities - that they should be considered as “merit goods” (Musgrave; see Chapter 10).
It may be that people do not realize how valuable these goods are, or that the benefit to society exceeds the benefits individuals derived from purchasing them. Similar issues arise with the provision of public goods, which will typically be underprovided by the market. It is easy for the theorist to ignore such goods, but when tackling specific applied problems it will be harder to avoid them.Much the same can also be said of income distribution. When operating at an abstract level, the economist may ignore problems of inequality and poverty in order to focus on other things. As Pigou (see Chapter 4) recognized, people have different tastes and this will have consequences for their choices and actions, making it difficult to assess how far inequalities are the result of individual choice and how far they indicate unfair treatment of some people that needs to be put right. However, it may become harder to ignore inequality or poverty when confronted with specific instances of poverty and the consequences of an unequal distribution of income. For example, child poverty often provokes a reaction of indignation. Tackling child poverty is impossible without addressing the situation of the families in which children are located, implying a need to address distributional issues that go beyond welfarism. Among economists discussed here, Samuelson (see Chapter 8) argued repeatedly that the value judgments involved in Pareto-efficiency would need to be supplemented by other ethical criteria.
2.4 Individuals and Society
Objections to using individual preferences or utilities as a measure of welfare is reinforced if individuals are seen as social creatures, whose preferences are influenced by the societies in which they live. In the modern world, it is hard not to take such a view. Besides, as individuals are embedded in a network of multiple interrelations, their welfare is strongly affected by a number of external, agglomeration or spillover effects. This explains a strong departure from, not only ethical individualism but also methodological individualism.
As Walras (quoted in Chapter 5) argued, “When human beings... act in order to consume, produce and survive, they cannot ignore the existence of the division of labor and therefore the interdependence and the solidarity among all human destinies.” As Desmarais-Tremblay explains in Chapter 10, Richard Musgrave held strongly to such a view. There is a long tradition, running at least from Thorstein Veblen to John Kenneth Galbraith that illustrates the way in which wants are socially determined. People are interdependent.2.5 Issues Relating to Paternalism
In the nineteenth century, it was common for economists, generally members of the upper classes, to adopt a paternalist attitude toward the working classes. Marshall’s views about how the working classes could improve themselves, discussed in Chapter 3, have already been noted. In a similar manner, Hobson (discussed in Chapter 2) assumed that his ethical values about the relative merits of different activities and types of consumption were generally held. Such views are not surprising in a world in which it was routine to view Western society, run by white, upper-class men, as the apex of civilization. In contrast, for modern economists, paternalist attitudes need to be justified (something Musgrave, discussed in Chapter 10, tried to do).
The situation was very different in the liberal Western societies fighting communism in the postwar period. In those societies, individuals were considered as the best judge of their own interests (see Amadae 2003). This made welfarism very attractive on account of its respect for individuals’ subjective preferences and its avoidance of paternalism. Changes in society can therefore go a long way toward explaining the shift from paternalism in the early twentieth century toward nonpaternalist views and the emergence of welfarism based on subjective utilities from the 1930s onward.
In contrast, when tackling specific applied problems, it is harder for economists, whatever their philosophical or ideological preferences, to avoid some of the objections to welfarism and that eventually justifies a need for paternalism.
As Samuelson (quoted in Chapter 8) asks, “what about the person choosing suicide even though, if he remained alive, he would soon change his mind?” Similar issues arise in the context of addiction (an addict may regret having developed an addiction) and more generally with activities, the consequences of which are unknown at the time choices are made. In other words, subjective preferences, as they exist when individuals take decisions, may not be the appropriate criterion by which to assess the consequences of an action for someone’s welfare. Whilst the economic theorist can ignore these issues, using hostility to paternalism as a defense of this strategy, such a defense becomes more difficult when operating at a more concrete, practical level, and this makes it easier to support non-welfarist arguments.It is however often difficult to justify non-welfarist views without falling into paternalism. For example, within capabilitarian theories, if an economist identifies the list of basic functionings for a person, he is being paternalist toward her as she could not have a voice on what she personally has reasons to value (Chapter 12). Because he values human agency, Sen has supported public deliberation in order to provide legitimacy for the information used in welfare economics (Chapter 13). Conclusions derived from welfare theories, whether they are wel- farist or non-welfarist, may be conducive to a richer public debate, but they cannot be a substitute for it.
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