A NEW PROGRESSIVISM
The German psychologist Dietrich Dörner has conducted some fascinating experiments, via computer, to see whether people can engage in successful social engineering.1 Participants are asked to solve problems faced by inhabitants of some region of the world. The problems may involve poverty, poor medical care, inadequate crop fertilization, sick cattle, or insufficient water. Through the magic of the computer, many policy initiatives are available (improved care of cattle, childhood immunization, drilling more wells), and participants can choose among them. Once particular initiatives are selected, the computer projects, over short periods and then over decades, what is likely to happen in the region.
In these experiments, success is entirely possible. Some initiatives will actually make for effective and enduring improvements. But most of the participants—even the most educated and professional ones—produce calamities. They do so because they do not see the complex, systemic effects of particular interventions. For example, they may see the importance of increasing the number of cattle, but once they do that, they fail to anticipate the serious risk of overgrazing. They may understand full well the value of drilling more wells to provide water, but they do not foresee the energy and environmental effects of the drilling, which then endanger the food supply. Only the rare participant is able to see a number of steps down the road—to understand the multiple effects of one-shot interventions into the system.
NOT A MIDPOINT
My goal in this chapter is to elaborate an understanding of the appropriate role of government, which I will call the New Progressivism. This understanding is developed with particular reference to the role of the nation-state in an era of globalization. The New Progressivism is an effort to combine an appreciation of a great lesson of the first half of the twentieth century (the failure of reliance on markets alone) with an appreciation of a great lesson of the second half of that century (the failure of economic planning).
I suggest that the New Progressivism offers simultaneously (1) a distinctive conception of government’s appropriate means, an outgrowth of the late-twentieth-century critique of economic planning, and (2) a distinctive understanding of government’s appropriate ends, an outgrowth of evident failures with complete reliance on market arrangements and largely a product of the mid-twentieth-century critique of so-called laissez-faire. For this reason, the New Progressivism should not be seen as a compromise between right and left or as an effort to seek some midpoint between those who believe in markets and those who reject them. Far from being a compromise or a midpoint, the New Progressivism offers both means and ends of its own.
With respect to means, the New Progressivism rejects approaches prominently associated with both social democracy and the New Deal, on the grounds that they are frequently ineffective or even counterproductive. To the New Progressivists, social democrats are too often like participants in Dörner’s experiments. Those who endorse the New Progressivism are insistently focused on consequences. They know that initiatives designed to help people who need assistance might backfire in practice—and that good intentions are no excuse for bad outcomes. Above all, those who endorse the New Progressivism have learned from the past fifty years of experience with markets and with efforts to discipline and constrain markets. They are alert to the risk of surprise and unintended bad consequences. They do not favor social engineering. Wherever possible, they attempt to use market-oriented strategies, enlisting markets on behalf of human interests, above all because such strategies are likely to work.
It follows that New Progressivists are alert to the central role of civil society, and especially to the importance of social norms, which often drive private behavior and which can change, for better or worse, over time. They are highly skeptical of command-and-control regulation and of aggressive interference with the labor market. They want to supplement markets, not displace them. They favor initiatives such as the Earned Income Tax Credit (EITC) and housing subsidies for the poor, and they are cautious about a high minimum wage and rent-control legislation. They believe that environmental problems should be handled through economic incentives, not centralized mandates. They favor nudges, in the form of low-cost, choice-preserving initiatives (such as default rules). For example, the New Progressivism
• attempts to control problems associated with social norms, such as crime, obesity, and distracted driving, through democratic efforts at norm management, often involving public-private partnerships;
• places the highest possible premium on education and training;
• rejects economic protectionism;
• favors incentives rather than centralized governmental commands;
• attempts to insure flexibility in the labor market, in part on the ground that flexibility helps low-income workers as well as others; and
• sees economic growth as a central (though far from exclusive) part of antipoverty policy.
So much for means; what of ends? Those who endorse the New Progressivism seek initially to achieve an incompletely theorized agreement on various practices and initiatives capable of attracting support from a wide range of theoretical perspectives. (See chapter 10.) Utilitarians, Kantians, those who begin from diverse theological positions, and numerous others can support the approaches described here. But to the extent that theoretical depth is required, New Progressivists will insist that free markets promote liberty, and indeed are centrally associated with it, but also that markets operate against a background that includes considerable injustice and also less than complete liberty. They think that, to a degree, complete reliance on market ordering will build on that unacceptable background.
Despite their enthusiasm for free markets, New Progressivists have considerable sympathy for some of the ideals associated with social democracy in Europe and the New Deal in the United States (see chapter 2): decent life prospects for all, good education, a social safety net for those at the bottom, environmental protection, workplace safety. But they believe that those ideals have often been quite murky and ill-defined—and also that they have been confused too often with a freestanding egalitarianism designed to promote equal economic outcomes as such. Those who believe in a New Progressivism do hope to produce an acceptable floor for everyone (largely by providing decent opportunities for all). But they are not much offended by large disparities in wealth—not because these are necessarily fair but because the much more important goal is to guarantee decent opportunities for all and because allowing at least some such disparities may well be necessary to provide appropriate incentives for economic growth. (Admittedly, this proposition raises empirical questions that require investigation.)
To those who believe in a New Progressivism, what is most necessary is to insure that basic human capabilities do not fall below a certain threshold.2 With Franklin Delano Roosevelt, New Progressivists favor minimal security. (See chapter 2.) New Progressivists add a distinctive conception of equality, one that forbids second-class citizenship or lower caste status for members of any group. This anticaste principle makes sex equality a singularly high priority, as a means for economic development and an end in itself.
OF MESS AND MENACE
The great American law professor Karl Llewellyn is reported to have said, “Technique without morals is a menace; but morals without technique is a mess.” This is a fitting criticism of some experiments in social democracy over the last several decades and a shorthand description of the failures of many participants in Dörner’s experiments—failures with parallels in the experiences of twentieth-century planners of various stripes. But Llewellyn reportedly also made essentially the same statement with an intriguingly different emphasis: “Morals without technique is a mess; but technique without morals is a menace.” This is an apt criticism not only of many twentieth-century experiments in social engineering but also of excessive reliance on free markets. The real task, for those interested in a New Progressivism, involves developing approaches and methods that are neither menace nor mess.
Longstanding debates have drawn attention to two possible strategies for dealing with markets: leave them alone or displace them. But the dichotomy is much too simple—in fact, damagingly so. First, the idea of “displacing” markets conceals a range of options, from nationalizing industries to blocking certain deals to providing information. Second, it is possible to complement markets rather than displace them—to provide institutions that do what markets do not do, and to help people who are failed by markets, an emphatically human institution. As economist Amartya Sen has written, very much in the spirit of the New Progressivism, “[I]t is possible to argue at the same time both (1) for more market institutions, and (2) for going more beyond the market.”3
With respect to methods and strategies, that is what I will be suggesting here. Throughout this chapter, I will paint with an extremely broad brush, discussing many issues that could easily be treated in a short book (or even a long one). My hope is that the brisk and sometimes reckless treatment of many issues might make up for its otherwise unpardonable neglect of the trees, by providing a decent perspective on the forest—a perspective that perhaps continues to be absent from existing treatments of possible twenty-first-century “ways.”
THE WAY OF MARKETS AND THE WAY OF PLANNING
If there is a New Progressivism, what is it opposing? There are two candidates. Let us understand the first to be a stylized version of the Ronald Reagan–Margaret Thatcher program, drawn from the work of the great Nobel Prize–winning economist Friedrich Hayek. Call this “the way of markets.”
On this view, free markets are indispensable to both liberty and economic growth. The state’s role is to create the preconditions for well-functioning markets by (1) establishing rights of private property and freedom of contract, (2) ensuring competition rather than monopoly, and (3) preventing force and fraud. Perhaps the government should also provide a social safety net, though a relatively weak one (to insure proper work incentives). But according to those who endorse the way of markets, government should not interfere with the labor market by requiring, say, high minimum wages or special protections for labor unions. And those who endorse the way of markets place the highest possible premium on both economic growth and a particular, market-based conception of liberty.
Of course, there is a spectrum of possible approaches here, from those who reject a social safety net to those willing to accept an ample set of protections for people at the bottom. What I mean to stress—captured in the ideas of “neoliberalism” and “liberalization”—is the primary emphasis on free markets and economic productivity.
As with the way of markets, the way of planning is actually a spectrum of ways, ranging from Soviet-style centralized planning to those forms of social democracy that are comfortable, in some areas, with nationalized industries, aggressively regulated markets, price and wage controls, and, most generally, “planning” of various kinds. For diverse examples, consider the following:
• laws that make it difficult for employers to discharge employees;
• laws that make it hard for landlords to evict tenants;
• state-created or state-protected monopolies;
• environmental regulations that specify the technology that must be used by industry;
• high minimum-wage requirements;
• high barriers to entry into certain jobs and professions;
• protectionism;
• tariffs;
• production requirements and quotas;
• public ownership of industry; and
• price-fixing or ceilings and floors on prices as a whole.
Of course, it is possible for a nation to adopt narrow or broad plans, or to be a planner in only a few small domains. A government that is generally skeptical of planning might conclude (whether rightly or wrongly) that it makes sense to have tariffs in some areas, or that agriculture should be protected with price supports, or that certain workers should be protected from arbitrary discharge, or that technological requirements are properly placed on new cars, to reduce levels of air pollution.
Let us now explore briefly some of the problems in both of these ways. For those who seek the way of markets, the initial difficulty is that while markets help to protect and promote liberty, they should not be identified with it. Markets operate against the backdrop set by existing distributions of resources, opportunities, and talents. When a disabled employee receives substandard wages and works under terrible conditions, it is wrong to say that liberty is sufficiently respected if we simply respect the deal. To the extent that starting points and existing distributions are products of a lack of liberty, market ordering may be a problem, not the solution. Whether the deal should be disrupted is another question. But from the standpoint of liberty, what markets generate should not always come with an automatic stamp of approval.
An equally fundamental problem is that the consequences of market ordering may not be so wonderful for many people. In any large nation, reliance on free markets alone—even if the markets are policed by prohibitions on force and fraud—will predictably produce a situation in which millions of people end up working long hours in shabby conditions for little pay (if they end up employed at all). Certainly a social safety net can help. But even if it is generous, it is not going to do all of what must be done. It will not, for example, protect people against unsafe working conditions, sexual harassment, pollution, or unfair discrimination. Market failures must be corrected. (See chapter 3.) And to the extent that the economic catalogue of market failures may not include certain forms of injustice (such as discrimination), free societies nonetheless take steps to counteract injustice.
But planning faces severe difficulties of its own. One problem is that it is likely to be vulnerable to pressures from self-interested private groups with stakes in a particular outcome. Environmental regulation might be turned into a mechanism for distributing benefits to groups that have precious little interest in environmental protection. An even more fundamental problem involves the unintended adverse consequences of even the most well-motivated plans. As Hayek emphasized, planners lack complete knowledge and are constantly surprised. The “knowledge problem” poses a constant and often insuperable challenge for planners. To take two simple examples, a law that makes it hard for employers to discharge employees is likely to make employers reluctant to hire people in the first instance. Similarly, a high minimum wage is likely to decrease employment. The problem is pervasive. We can understand it a bit better in light of Dörner’s work, showing the unfortunate and sometimes catastrophic effects of one-shot interventions. Economic and social orders are systems, and the difficulty with plans is that their architects are frequently unable to foresee the consequences of their actions. The great advantage of incentives, rather than commands, is that they reduce the knowledge problem.
Planners commonly refer to the unfairness of markets, and they are often right. But an emphasis on unfairness does not justify laws that actually do no good. As Amartya Sen and Jean Drèze write in their book India: Development and Participation, “The rhetoric of ‘equity’ has often been invoked to justify governmental interventions without any scrutinized political assessment of how these powers will be exercised and what actual effects they will have. In practice, these ill-directed regulations have not only interfered often enough with the efficiency of economic operations (especially of modern industries), they have also failed fairly comprehensively to promote any kind of real equity in distributional matters.”4 An overriding problem with the way of planning is that the consequences of plans are often really bad, not least from the perspectives of well-meaning planners themselves.
THE ROLE OF GLOBALIZATION
Thus far, I have said nothing about globalization. (By that term, I mean to refer, very simply, to the increasing mobility of persons, information, and products from one area of the globe to another.) What is the effect of globalization on the way of planning and the way of markets?
It is best to think of global markets as like ordinary domestic markets in exaggerated form. The major effect of global pressures is to intensify competition, so that stringent national regulation might well leave companies within a country at a disadvantage both abroad and at home. In fact, such companies might decide to do business in other nations. If the effect of regulation is to cause companies to exit, it might cause serious harm—among other things, by reducing both growth and employment. Strict environmental controls might be objectionable for this reason. If a rule is designed to control greenhouse gas emissions, it might not be so helpful if polluters leave and continue to pollute where they do business. True, such risks might be reduced through protectionist measures, but these create familiar problems of their own, because they hurt local consumers by increasing prices and are likely, generally speaking, to damage the national economy.
In some respects, globalization increases the problems associated with both of the two ways. Insofar as markets produce unfairness and negative results for millions of people, global pressures can increase the difficulty. (Of course, such markets also produce many benefits for poor people as well as for everyone else, especially insofar as they promote growth, create jobs, and cut prices.) If a nation’s workers have to compete with everyone in the world—or, in any case, with a much larger class of people—those without training and skills are going to be left further behind. At the same time, global pressures will inevitably confound ill-considered plans. Because markets are frequently global, the effect of plans will often be very different from what was sought and anticipated. This is a particular problem if, for example, an effect of stringent regulation of the labor market is to reduce the demand for domestic labor, thus hurting domestic workers.
These points hardly mean that states are incapable of governing in a global era. There is a great deal that they can do. The increased mobility of capital has not disabled national regulation. But the problems with both of the two ways are simultaneously intensified by the existence of global markets.
THE ROLE OF COSTS
Those who favor markets and those who favor planning often make a sharp distinction between “negative rights” and “positive rights.” The former are said to be barriers to government action, and to that extent costless. The latter are entitlements to government protection, and to that extent costly. Market enthusiasts argue for the former and against the latter. Planners tend to argue for both.
From the standpoint of the New Progressivism, both views suffer from a problem that is both conceptual and practical: there is no categorical difference between negative and positive rights. Both consist of entitlements to government action, and both are costly. Compare, for example, the right to freedom of speech with the right to a minimum-income guarantee. In a state of anarchy, or in a state without money, neither right can exist. Of course, the minimum-income guarantee needs taxpayer support. But the same is true for the right to free speech. Without institutions (including a judiciary) willing to protect people from both public and private intrusions on free speech,5 that right cannot exist. Without a sufficiently funded state willing and able to prevent public marauders from silencing opposition, free speech is a chimera. Without public protection from private acts of violence against those who make controversial statements, free speech is weakened.
What is true for free speech is true for much of the universe of supposedly negative rights.6 Consider, for example, two rights that are central to a market economy: the right to private property and the right to freedom of contract. Both of these depend on government protection. (See chapter 2.) Private property does not exist in the state of nature, at least not in its current form. It is a taxpayer-subsidized right, justified on the grounds that it benefits individuals and society as a whole. True, people can make contracts without a strong state, but unless a taxpayer-subsidized legal system stands ready and able to insure that contracts are enforced, how much force are mere words likely to have?
Those who believe in a New Progressivism know that all rights have costs and that a poor state cannot adequately protect rights. One reason why they favor a strong economy and economic growth is that these are important preconditions for ample rights protection. In a rich or poor state, it follows that a central task for democratic self-government is to obtain the necessary funds and to insure that they are allocated in a way that reflects sensible priority setting. The field of public finance is not separable from the field of democratic theory.
SOCIAL MEANING AND SOCIAL NORMS
Those who endorse the way of markets may not have a lot to say about the relationship between government and civil society. Market enthusiasts tend to rely on existing norms and preferences; this is part of their conception of laissez-faire. Those who endorse the way of planning may also have little to say about civil society, sometimes treating it as a domain that must be enlisted in the interest of social goals. A better approach would emphasize several points:
1. the crucial importance of social norms in producing both desirable and undesirable behavior;
2. the likely role of government in helping to constitute such norms;
3. the dependence of social norms on current information;
4. the often rapid change in social norms over time;
5. the extent to which highly visible, or cognitively “available,” examples and events can alter norms and behavior; and
6. the possible use of government to move norms in desirable directions.
These points suggest promising possibilities for controlling many social problems, including crime, obesity, HIV/AIDS, discrimination, distracted driving, and environmental degradation. What I will be emphasizing here is the significance of social cascades, including norm cascades, in which social interactions can lead behavior in dramatic directions. (See chapter 1.) Sometimes these cascades are induced by new beliefs; sometimes they are induced by new understandings of the meaning of certain actions. Since people take their cues from the actions of others, and since they care about their reputations, certain policies can backfire, while others can have wide-ranging desirable effects.
PROBLEMS WITH BANS
When government seeks to discourage certain conduct, what should it do? Those committed to planning generally have a simple answer: forbid it. Those committed to markets respond similarly, though they are reluctant to ask government to discourage private behavior falling outside the basic categories of force and fraud. Those who believe in a New Progressivism think that the shared answer—“forbid it”—is too simple and misleading, and potentially even damaging.
New Progressivists do believe that incentives are important, and for anyone who believes this, it seems natural to think that if conduct is banned, there will be less of it. But bans create problems of their own. In some (admittedly unusual) circumstances, they can be self-defeating, leading to more of the behavior that they seek to reduce. The reason is that behavior is often driven by social norms and by the signal that the behavior carries; a ban can amplify the signal and increase the conduct. Suppose, for example, that people are engaging in certain harmful conduct precisely because it is a way of defying authority and offering certain signals to relevant people. You might smoke, for example, because smoking is, in some places, an act of rebellion; so, too, with engaging in unsafe sex; so, too, with a decision to commit a crime. In short, actions have meanings, and the social meaning of an action is an important determinant of what people will do and when they will do it. Consider the finding that when people are paid to engage in a certain desirable activity (cleaning up, for example, or arriving on time to pick up children from school), they will sometimes actually engage in that behavior less rather than more—because the payment reduces the effect of the norm, which would otherwise have the deterrent effect of the payment.7
Bans may also have a high degree of rigidity and impose significant costs. In some cases, it is possible to identify approaches that are more flexible, have high benefits, and impose lower burdens. “Nudges,” in the form of small steps that maintain freedom of choice, may be less costly and more effective than mandates and benefits.8 Consider automatic enrollment in savings plans, which is highly effective in increasing participation rates—potentially more effective, in fact, than significant economic incentives.
DOING WHAT OTHERS DO
Those who seek a New Progressivism are especially interested in enlisting an understanding of social norms and social meanings in the service of improved policies. They emphasize that in many domains, people think and act because of what they think (relevant) others think and do. Here are some examples:
• Employees are more likely to file suit against their employer if others on the job have done so.9
• Teenage girls who see that other teenagers are having babies are more likely to become pregnant themselves.10
• Littering and nonlittering appear to be contagious behaviors.11
• The same is true of some kinds of crime.12
• Those who know other people who are on public assistance are more likely to go on public assistance themselves.13
• If people are informed of how their energy use compares with that of their neighbors, they consume less energy.14
• The behavior of proximate others affects the decision whether to recycle.15
• A good way to increase the incidence of tax compliance is to inform people of high levels of voluntary tax compliance.16
• Students are less likely to engage in binge drinking if they think that most of their fellow students do not engage in binge drinking, so much so that disclosure of this fact is one of the few successful methods of reducing binge drinking on university campuses in the United States.17
As we saw in chapter 1, social influences affect behavior by means of two different mechanisms. The first is informational. If many other people support a particular candidate or refuse to use drugs, observers receive a signal about what it makes sense to do. The second mechanism is reputational, as group members impose sanctions on perceived deviants, and would-be deviants anticipate the sanctions in advance.18 Even when people do not believe that what other people do provides information about what actually should be done, they may think that the actions of others provide information about what other people think should be done. Reputational considerations may lead people to do or not do the following: obey the law, smoke, drive while drunk, and help others.
The central question is how understanding these points might lead policies in better directions. What is especially promising is the possibility of achieving a “tipping point,” at which large numbers of people start moving in novel directions. People typically have different thresholds for choosing to believe or do something new or different. As those with low thresholds come to a certain belief or action, people with somewhat higher thresholds join them, possibly to a point where a critical mass is reached, making groups tip. The result can be to produce snowball or cascade effects, as small or even large groups of people end up believing or doing something simply because other people seem to believe that it is true or worth doing. Many real-world phenomena have a great deal to do with cascade effects.19 Consider, for example, smoking, participating in protests, striking, recycling, using birth control, choosing what to watch on television,20 even leaving bad dinner parties.21 We can understand certain people, in the private and public sectors, as “norm entrepreneurs,” seeking to give certain signals to many people, and, in the process, helping to shift norms in a desirable direction.
All this is quite abstract. The central question remains: How might government induce tipping, or social cascades?
EDUCATION AND INFORMATION
Suppose that people are engaging in an activity that involves harm to themselves or to others; for simplicity, assume that the activity is not itself criminal. From the standpoint of the New Progressivism, the first prescription is simple: inform people. With respect to cigarette smoking, obesity, and unsafe sex, a great deal of risky behavior comes simply from a lack of information. Evidence shows that by itself, information, if it can be made salient and vivid, can produce substantial changes in behavior. In Thailand, a revelation that 44 percent of sex workers in Chiang Mai were infected with HIV appears to have contributed to a substantial increase in the use of condoms. Growth in condom use in the United States in the 1980s was driven largely by information. Public information campaigns, use of the mass media, and face-to-face education and training programs can help.22
This should hardly be surprising. But there is a somewhat more subtle point. It is possible to produce information-induced norm cascades, in which social norms—and social meanings—change dramatically as a result of changes in beliefs. In the United States, this has happened with large-scale shifts in judgments about cigarette smoking and, in the early 1990s, with large-scale shifts in judgments about both sexual harassment and unsafe sex. One of the causes and consequences of these shifts has been a change in the relevant social meaning.
Whereas smokers were once thought to be doing something entirely normal, so that objecting nonsmokers were bossy intermeddlers, smokers are now thought to be doing something aggressive and possibly harmful (as a result of secondhand smoke), so that they are expected to refrain or to apologize and to ask permission. What once seemed abnormal and even bold—a request to refrain—now seems normal and unobjectionable. With respect to buckling seat belts, something similar has happened. At one point, those who buckled their belts seemed to be accusing the driver or confessing cowardice; that was the social meaning of their decision to buckle. As norms shifted, the act of buckling had no such meaning.23 A general question is when and whether dissemination of more information about harm-producing activity can produce large-scale changes in behavior. Often it seems to do precisely that. In the areas of obesity and distracted driving, we might hope for significant changes in the future.
COSTS AND NORMS
Of course, information may not do enough. People who engage in risky behavior often know that their behavior is risky. People who text while driving, or who pollute or who otherwise impose environmental harm, often know what they are doing. People who engage in discrimination may mistake no facts. In such circumstances, New Progressivists will be willing to consider initiatives that will increase the benefits or decrease the (pecuniary or nonpecuniary) costs of desirable behavior, and decrease the benefits or increase the (pecuniary or nonpecuniary) costs of undesirable behavior. Efforts to influence norms might play a role in these efforts.
In the context of risk-taking behavior, it is often easy to think of steps in this vein. People might, for example, be required to wear seat belts, or to use helmets when riding motorcycles. Such programs impose sanctions on violators. Sometimes subsidies are better than sanctions. In the context of the HIV/AIDS crisis, condom marketing programs have often been demonstrably successful. Especially when high-risk areas and poor households are targeted, such programs have been exceedingly beneficial, producing significant increases in condom sales and use.
It can also be important to alter the social meaning of risk-producing activity, partly through creative private-public partnerships. In some places in the world, condom use is an accusation or a confession. But in other cultures, the failure to use a condom reflects a kind of irresponsibility—a willingness to endanger the life of another person. The most promising policies make condom use appear routine and responsible, and hardly an act of cowardice or a violation of the goals of the underlying activity.
Norms are changed most easily when the relevant population is young. With respect to HIV/AIDS, obesity, distracted driving, environmental harm, and crime, many people are in the process of developing their own norms. To the extent that government can work with this population, helping to create norms that produce benefit rather than harm, there is much to be gained. For HIV/AIDS in particular, an absolutely central goal should be to insure equality on the basis of gender with respect to sexual relations—an idea that calls for prohibitions, through law and norms, on sexual coercion of all kinds (principally rape, but other forms of force as well). “No” should be understood to mean “no”; “only with a condom” should be understood to mean exactly that. Obesity and distracted driving are especially high-priority items for the future, and here norms are crucial.
CRIME: ORDER MAINTENANCE AND CONTAGION
Why do people commit crimes? No simple answer would make sense. For some, poverty and desperation are part of the answer. But part of the answer also lies in people’s perceptions of what other people do. Criminality and law-abiding behavior appear to be contagious.
If most people think that many people are engaging in crime, it will increase. If most people think that few people are criminals, criminal activity will be less likely. The bad news is that all societies are vulnerable to “crime cascades,” as people take their cues from others. The good news is that this fact can be enlisted in the service of crime prevention. In both the United States and England, efforts have been made, with considerable success, to use order maintenance and community policing in the interest of “legality cascades.” In various contexts, an understanding of group polarization can help explain the underlying social dynamics.
In the 1990s, for example, New York saw a dramatic decrease in crime—not merely in murder (40 percent) but also in burglary (over 25 percent) and robbery (over 30 percent). A contributing factor can be seen in light of the “fixing broken windows” approach to crime prevention. The basic idea is that both law-abiding citizens and potential lawbreakers learn a great deal from the presence of order or disorder. People who obey the law are less likely to use the streets in the presence of disorder, and prospective criminals are more likely to engage in criminal activity, taking disorder as a signal of what is possible. But if minor problems—such as begging, graffiti, prostitution, loitering, littering, and broken windows—are sharply reduced, the signals will be different, and more serious crimes will decline too. Efforts to stop or reverse a crime epidemic at the very start, through seemingly small changes in context, can bring about sizeable benefits.
This is the core of the “order maintenance” approach to crime. In 1993, New York took new steps to maintain social order, and to give new signals to prospective criminals, by focusing on seemingly small criminal actions, such as aggressive begging, public drunkenness, prostitution, and vandalism. Prospective criminals, and prospective victims, act on the basis of their perceptions of what other people are going to do. When people think that crime is increasing, cascade effects are possible. Happily, the opposite can happen when people are given signals that crime is decreasing.
EMPLOYMENT AND POVERTY: SUPPLEMENTING, NOT DISPLACING, MARKETS
Let us turn from social norms to issues of deprivation and poverty and in particular to three ways of responding to certain problems in the employment market. These ways are associated respectively with markets, planning, and New Progressivism. My general suggestion is that a New Progressive government should generally refuse to block exchanges between contracting parties. It should respond instead by providing economic help directly to those who need help. These “market supplementing” approaches are preferable to “market displacing” approaches characteristic of the way of planning.
Those who favor the way of markets tend to respond to poverty either with nothing or with a social safety net, and not a very generous one at that. Those who favor the way of planning respond with high minimum wages, aggressive regulation of the labor and housing markets, and a generous social safety net. Those who endorse the New Progressivism reject both approaches. They place the highest premium on three strategies: (1) education and training, (2) taxpayer-supported wage and housing subsidies, and (3) incentives to companies to increase the likelihood that they will relocate to poor areas and hire people who would otherwise lack work (“empowerment zones” and “enterprise zones”).
Above all, they believe that no citizen should be poor if she is willing and able to work; that to the extent feasible, everyone should be able to work; and that in the absence of special circumstances (disability, obligations to others), everyone should be willing to work. This is the sense in which New Progressivists endorse the old idea that there should be “no rights without responsibilities.”
BLOCKED EXCHANGES AS MESS
Well-motivated planners often try to protect people by “blocking exchanges,” through, for example, minimal rights that employees, consumers, and tenants must enjoy, and may not waive, even through voluntary agreements. In the market, and particularly in the labor market, a common justification for this form of regulation is redistribution—particularly redistribution to those who need help.
National legislatures often impose controls on the market to prevent what they see as exploitation or unfair dealing by employers, who seem to have a competitive advantage over workers, especially poor workers. Those who favor a New Progressivism do not lack sympathy with the goals here, but they believe that this approach suffers from many of the problems faced by Dörner’s planners. New Progressivists thus have a presumption against this approach, because they do not believe that it is, in general, a good way to help people who need help. The presumption is certainly rebuttable; in some cases, it is reasonable to block exchanges. But New Progressivists generally seek to help workers through different means, such as the Earned Income Tax Credit, other forms of income supplementation, subsidized housing, and education and training.
To be sure, some agreements between employers and employees are harsh, and the claim for redistribution is often strong as a matter of basic principle. Some workers enter into deals that do not seem terrific, simply because their options are so few. In fact, market wages and prices depend on a wide range of factors that are or may be morally irrelevant: historical injustice; supply-and-demand curves at any particular point; variations in family structure and opportunities for education and employment; existing tastes; and even differences in initial endowments, including talents, intelligence, or physical strength. The inspiration for minimum-wage legislation, for example, is easy to identify. Some workers have very low wages, and if minimum-wage legislation can help them, it seems attractive. Similarly, rent-control legislation prevents tenants from being subject to unanticipated price increases and perhaps thrown into much worse housing. Implied warranties of habitability protect tenants from living in disgraceful and even dangerous apartments.
In all these cases, however, regulation may well be a poor mechanism for helping people, precisely because it can be self-defeating. The problem is that if everything else is held constant, the market will frequently adjust to regulation in a way that will harm many people, including the least well-off. The claim need not be that markets have any special moral status; it is that blocking exchanges is often a doomed way of doing what well-motivated planners seek to do: help poor people. Dörner’s planners are highly relevant here.
For example, it is a mistake—we might even call it a defining mistake of planners—to assume that regulation will directly transfer resources or create only after-the-fact winners and losers (an idea exemplified by the assumption that the only effect of the minimum wage is to raise wages for those currently working, or that the only effect of protecting tenants against eviction is to allow poor tenants to retain housing). An important consequence of a high minimum wage may well be to increase unemployment by raising the price of marginal labor. Those at the bottom of the ladder—the most vulnerable members of society—are the victims. In a wealthy nation with a growing economy, a relatively high minimum-wage law might not do much harm, and might do enough good to be justified on balance. And indeed, recent evidence suggests that in the United States, modest increases in the minimum wage have not had adverse effects on employment. But in a country that is poor and has a high unemployment rate, there is reason to question high minimum-wage requirements, because they do not simply redistribute resources from employers to poor workers (which would be good), and because they end up hurting the poorest people of all, who end up without jobs.
In fact—and this is a separate problem with blocking exchanges as a method of redistribution—a minimum wage is not directly aimed at poor people at all. Many of the people who benefit from minimum-wage increases have other sources of income, and they would not qualify for programs that would be specifically designed to help those who need financial assistance.24 Of course, minimum-wage workers are usually far from wealthy, and many of them are indeed poor. But the problem with regulations that block exchanges is that the poor are not specifically or necessarily targeted. The regulations help some people who do not need help, or who do not have the strongest claim to help, and thus use resources that might be better used elsewhere.
I have said that blocking exchanges is not always a bad idea. Minimum-wage legislation does, after all, raise the wages of the working poor, and as noted, some studies suggest that modest increases in the minimum wage do not increase unemployment. But there can be little doubt that interference with the labor market will produce losers as well as winners. Efforts to redistribute resources through regulation can therefore have perverse results. The point bears on regulation of the labor market, the housing market, and the market for ordinary goods and services. It counsels against anything that looks like price-fixing as a redistributive strategy.
ALTERNATIVES
Thus far, I have discussed what the New Progressivism opposes. What does it support?
New Progressivists believe in a social safety net. But they emphasize approaches that will give people an ability to help themselves, through education, training, and job opportunities, fueled by economic incentives in the form (for example) of tax credits to employers and employees alike. They seek to supplement markets rather than displace them.
Consider a study of South Africa, based on 1996 data, demonstrating the enormous importance of education to employment prospects.25 The study shows that high ratios of teachers to students dramatically increase the likelihood of employment—with a statistically significant effect for males, and a very large effect for females. The authors conclude that the apartheid “system continues to profoundly influence the life chances of many Black Africans, through its long-lasting effects on the country’s education system. Many Black Africans currently in the labor force attended schools with inadequately trained teachers, insufficient textbooks, and pupil-teacher ratios above 80 children per class.” The result of all this is to decrease both years in school and employment prospects. Better education and training are a direct and effective way of helping people to obtain jobs and decent wages. Similarly, an impressive study in the United States shows that good teachers have extremely significant long-term effects in improving students’ economic prospects—and, indeed, that good teachers have such effects even in early grades.26
For many people, of course, other steps are required. A central New Progressivist approach is to develop initiatives to supplement low wages. Well-designed initiatives neither discourage employers from hiring people nor discourage prospective workers from seeking employment. Many countries have experimented with some variation on the Earned Income Tax Credit. (The program may or may not be limited to people with children.) Under this approach, low-wage workers obtain a tax credit from the government, sufficient to raise their total compensation to a decent level. In the United States alone, the EITC has been a terrific success, lifting millions of people from poverty. In one year, for example, EITC took 4.6 million people, including 2.4 million children, out of poverty.27
Compared to planning-type initiatives, the EITC approach has three large advantages. First, it does not make labor more costly for employers and thus does not decrease employers’ desire to hire people. Second, it increases people’s incentives to work by making employment more remunerative. Third, the EITC genuinely and specifically targets the poor. In the United States, for example, nearly three-quarters of those who benefit from the EITC are poor or near poor. The EITC is the model of a New Progressivism antipoverty program.
Creative policy makers could easily build on this model and use it as an alternative to well-motivated but crude plans. Old-style planners interested in protecting tenants might, for example, impose ceilings on rent increases. Other such planners might try to protect consumers by imposing price ceilings. If the government is interested in ensuring that tenants cannot be evicted for nonpayment of rent, planners might impose large procedural hurdles to eviction. If decent housing is unavailable, government might build housing on its own. These strategies are all associated with planning, and while it is possible that they might do some good, New Progressivists are skeptical of these approaches and would hunt for market-friendly alternatives. For example, they might seek to provide housing vouchers to poor people, or to provide food to those who are unable to buy enough to eat.
New Progressivists would also urge government to promote empowerment zones or enterprise zones in poor communities by giving businesses a tax credit, or direct subsidies, to the extent that they are willing to locate in areas that need help and to employ people who need jobs. These are market-oriented strategies, deploying markets in the interest of human goals. Learning from the failures and half-successes of planning, those who adopt such strategies attempt to be like the successful participants in Dörner’s experiments, whose interventions are alert to the potentially harmful side effects of intrusions into systems.
COMMAND AND CONTROL REGULATION: A PRESUMPTION AGAINST
In controlling pollution and other social harms, a number of nations, even some of the most proudly capitalist, have engaged in a form of planning through command-and-control regulation. Such regulation involves centralized regulatory requirements imposed on dozens, hundreds, thousands, or even millions of producers. As examples, consider “best available technology” (BAT) requirements, imposed on polluting firms. Similar approaches can also be found in the area of occupational safety, where national authorities sometimes specify the safety technologies and approaches that must be used by all or most firms in a nation.
It is important to acknowledge that in many countries, command-and-control regulation has hardly been a complete failure. In the United States, it has helped to reduce levels of air pollution dramatically. Relying on markets alone would have been far worse. In this domain, the way of planning is far better than the way of markets. But for several reasons, New Progressivists raise serious objections to the basic approach.
The first problem is that it can be unnecessarily expensive, even wasteful, for government to prescribe the means for achieving social objectives. As Hayek emphasized, the information held by planners is likely to pale in comparison to the dispersed information of the public. At least as a general rule, it is especially inefficient for government to dictate technology. One of the many problems with BAT strategies, for example, is that they ignore the enormous differences among plants and industries and among geographic areas. It is questionable to impose the same technology on industries in diverse areas, regardless of whether they are polluted or clean, populated or empty, or expensive or cheap to clean up. BAT strategies often require all new industries to adopt costly technology, and allow more lenient standards to be imposed on existing plants and industries. Through this route, BAT strategies actually penalize new products, thus discouraging investment and perpetuating old, dirty technology. The result is inefficient investment strategies, inefficient innovation, and inefficient environmental protection.
In general, governmental specification of the means of achieving desired ends is a good way of producing unnecessarily high costs. Instead of permitting industry and consumers to choose the means—and thus to impose a form of market discipline on that question—government sometimes selects the means in advance. The governmentally prescribed means is often the inefficient one.
Command-and-control approaches are also deficient from the standpoint of democracy. The focus on the question of means threatens to increase the power of well-organized private groups, by allowing them to press environmental and regulatory law in the service of their own parochial ends. The BAT approach, for example, insures that citizens and representatives will be focusing their attention not on what levels of reduction are appropriate but on the less central and sometimes impenetrable question of what technologies are now available. Because of its sheer complexity, this issue is not easily subject to democratic resolution. Moreover, the issue is not the most important one for democratic politics, which is the appropriate degree and nature of environmental protection.
New Progressivists do not rule mandates and bans off-limits, but their preferred approach is much simpler: (1) use “nudges,” in the form of low-cost, choice-preserving approaches, such as informing people about risks, including environmental risks, or enlisting default rules; and (2) impose a cost on harmful behavior and let market forces determine the response to the increased cost. Such a system would also reward rather than punish technological innovation in pollution control, and do so with the aid of private markets.
Nudges and economic incentives could and should be applied in many areas. With respect to savings, energy, environmental protection, and health insurance, both information and default rules can do a great deal of good. The United States, the United Kingdom, and many other nations are using nudges—sometimes from the private sector, sometimes from the government.28 In these domains, there is far more to be done.
With respect to incentives, workers’ compensation plans help to increase workplace safety. According to a careful study, “If the safety incentives of workers’ compensation were removed, fatality rates in the United States economy would increase by almost 30 percent. Over 1,200 more workers would die from job injuries every year in the absence of the safety incentives provided by workers’ compensation.”29 This figure contrasts with a mere 2 percent to 4 percent reduction in injuries from the Occupational Safety and Health Act (OSHA), an amount that links up well with the fact that annual workers’ compensation premiums are more than a thousand times greater than total annual OSHA penalties.
The international movement toward the use of economic incentives, a central part of the New Progressivism, is continuing. A great deal has occurred in the environmental area. In the United States, an important series of administrative initiatives has brought about “emissions trading,” especially under the Clean Air Act.30 Under certain policies of the Environmental Protection Agency (EPA), a firm that reduces its emissions below legal requirements may obtain “credits” that can be used against higher emissions elsewhere. In its early years, the program was far less expensive than a command-and-control system would have been, producing total private-sector savings of between $525 million and $12 billion.31 By any measure, this is an enormous gain. On balance, moreover, the environmental consequences have been beneficial.
As part of the process for eliminating lead from gasoline—a decision that was strongly supported by a cost-benefit study (see chapter 3)—the EPA also permitted emissions trading. Under this policy, a refinery that produced gasoline with lower-than-required lead levels could earn credits that could be traded with other refineries or banked for future use. Until the termination of the program in 1987, when the phasedown of lead ended, emissions credits for lead were widely traded. The EPA concluded that the program produced savings of about 20 percent over alternative systems, amounting to total savings in the hundreds of millions of dollars. There have been similar efforts with water pollution and ozone depletion.32
In the United States, perhaps the most ambitious program of economic incentives can be found in the 1990 amendments to the Clean Air Act. The act explicitly creates an emissions trading system for the control of acid deposition. In these amendments, Congress made an explicit decision about total emissions of the pollutants that cause acid deposition (a “cap”). The program has turned out to be an extraordinary success.33 It has achieved dramatic pollution reductions, and it has done so while costing billions of dollars less than the command-and-control alternatives. The program has also proved able to handle significant and unanticipated changes over time, in a tribute to Hayek’s emphasis on the advantages of the price system in handling new and unexpected developments. In many respects, the acid deposition program should reflect the way of the future.
ECONOMIC GROWTH, CAPABILITIES, AND SEX EQUALITY
Thus far, I have dealt with New Progressivist means—stressing the need to attend to both incentives and norms, and to avoid the rigidity, harmful unintended consequences, and costs associated with many plans. It is now time to turn to the question of ends.
For the last decades, many people have evaluated national well-being in terms of economic growth. Indeed, this approach has been characteristic of those who emphasize the way of markets, and much of the time, it has been adopted by those who attempt the way of planning as well. On this view, a country’s performance is assessed by asking about gross domestic product and by seeing its movement over time.
GDP is an exceedingly important and useful figure, for it bears a close relationship to important social goals. If we think of income as an all-purpose means—as something that people want regardless of what else they want—we will indeed want to attend to GDP. Growth does matter for achieving a wide range of vital ends. As we saw in chapter 4, increases in GDP are closely correlated with increases in subjective well-being (and without an evident point of “satiation”). A study of antipoverty measures in the United States, by someone well disposed to government programs and not especially enthusiastic about reliance on markets alone, announces as lesson one, “A strong macroeconomy matters more than anything else.”34 Well-protected property rights and freedom of contract, safeguarded by state institutions, are quite central to economic growth.35 They are at least as important in poor countries as in rich ones.
While GDP has central importance, there are a number of problems with relying on it as the exclusive measure of well-being.
• If income is distributed unequally, a high GDP may disguise the fact that many people are living bad or even desperate lives. For example, the United States has the highest per capita real GDP in the world. But in recent years, it has also had a higher rate of childhood poverty than any other wealthy country in the world. The percentage of children living in poverty is significantly higher than that of the industrialized nations taken as a whole (and much higher than that in Western Europe). In recent years, about half of African-American children in the United States have lived in poverty. While white Americans, if taken separately, would rank first on the Human Development Index of the United Nations Development Program (UNDP), African-Americans, if taken separately, would rank somewhere in the thirties. These crucial economic facts are undisclosed by GDP.
• GDP sometimes seems to be a general placeholder for a number of diverse indicators of social and economic well-being. But in fact, it may not be closely correlated with some important indicators. Consider two major social goals: reducing poverty and reducing unemployment. Of course, GDP growth is an important factor in counteracting both unemployment and poverty. But it is not impossible for GDP increases to be accompanied by increases in unemployment and, in turn, poverty (which is closely correlated with unemployment). Indeed, this phenomenon has occurred. Physical security is surely an important ingredient in well-being, but it is only reflected indirectly in GDP. Nor is there an inevitable connection between GDP and life expectancy. Some countries have a relatively low GDP but long life expectancy and low rates of infant mortality, while other countries with a high GDP fare poorly in promoting longevity. Education is an important part of a good life, whether or not educated people accumulate wealth; but the association between education and GDP, while real, is far from perfect.
• GDP also fails to account for free goods and services, including some that are closely associated with economic well-being. For example, unpaid domestic labor is not a part of GDP. Many environmental amenities, such as clean air and water, are not reflected in GDP. The GDP figure thus fails to capture either the benefits of a healthy environment or the costs of environmental degradation. There are other gaps in what GDP measures. It does not, for example, reflect changes in leisure time, but it is clear that any increase in leisure is a gain even in economic terms, since leisure is something for which people are willing to pay, sometimes a great deal. Most generally, a serious problem with GDP is that the figure excludes all social costs and benefits that do not have prices.
The broadest point is that GDP does not fully capture what a good society is concerned to promote. Responding to these points, many people have attempted to come up with other measures of national well-being. Of these, the United Nations Development Program’s effort is the most well known. The UNDP uses an index of well-being based on per capita income, educational attainment, and longevity
Of course, any “index” is bound to have a degree of arbitrariness. What is important is that a nation with a relatively low GDP can provide its citizens pretty long lives and pretty good educations—and that a country with a high GNP can give many of its citizens a poor education and relatively low life expectancies. (The United States is an unfortunate case in point, with an extremely high per capita income but one of the lowest life expectancies among comparable countries.) The theoretical roots of one effort to go beyond GDP lie in the “capabilities approach,” which attempts to assess “what people are actually able to do and to be.”36
It should not be contentious to urge that certain capabilities are necessary for a decent human life. These include the ability to have good health, to participate in political choices that affect one’s life, to be educated, to hold property.37 When people lack one or more of these abilities, they suffer from “capability failure,” and this is a problem to which government should respond. The minimal responsibility of a New Progressivist government is to try to insure that all citizens are able to rise above a certain threshold.
Insofar as the Human Development Index and related efforts go beyond GDP to provide a simple, salient, easily understood figure by which to facilitate international comparisons and changes over time, they are a good place to start. They also provide a great deal of help with priority setting. In some nations, for example, it is clear that a large premium should be placed on improving longevity; in some places in the world, citizens have relatively short life expectancies, partly as a result of high crime levels and low standards of health care. By contrast, other nations should concentrate on increasing economic growth; they provide decent education and relatively long lives, but their citizens are relatively poor.
THE ANTICASTE PRINCIPLE—AND THE CENTRALITY OF SEX EQUALITY
Caste and Anticaste. For New Progressivists, I have suggested that it is important to insure that everyone has decent life prospects and also that everyone comes over a “capability threshold.” A separate goal is to prevent some people, defined in terms of a morally irrelevant characteristic, from being treated as second-class citizens or turned into members of a lower caste. Thus an anticaste principle, undergirding a constitutional equality norm, plays a large role in New Progressive thinking.
The anticaste principle is not thoroughly egalitarian. It is compatible with large disparities in wealth and resources. But it insists that morally irrelevant characteristics, such as race, religion, and gender, should not be turned into a basis for second-class citizenship. New Progressivists see one of the most serious inequality problems in the practice of seizing on a characteristic lacking moral relevance and using it as the basis for the systematic subordination of certain social groups. Sometimes formal law helps to create a caste system. Sometimes a caste-like system is a product of social norms and private decisions.
Sex Equality as a Central Goal, as a Means and an End. For developing and wealthy countries alike, an end to sex-based inequality is an especially high priority—as both a means and an end. With respect to many problems—HIV/AIDS, crime, economic growth, overpopulation—there are few higher priorities. Indeed, any generalized attack on poverty must be combined with an attack on sex inequality. The two problems are closely intermingled.
Note first that sex equality is an important means to human development, as Amartya Sen and others have shown with their particular emphasis on “women’s agency.”38 A nation in which girls and women have a chance to do and be what they want is far more likely to develop. A country with severe sex inequality will suffer economically and in other ways. In fact, a commitment to equality on the basis of sex is likely to redress many problems not normally thought to be associated with it, such as overpopulation and the individual and social problems that come from unwanted children. When women have a range of opportunities, and when their choices are not foreclosed by (or a product of) deprivation, these problems are sharply diminished. If women have agency, the economy will do better, simply because more people are willing and able to do good work. If women have agency, there will be an immediate and substantial reduction in the transmission of AIDS, simply because women will be able to engage in sexual relations only when they want and on their terms. This is a potentially enormous benefit for men, women, and children.
This idea has many implications. It means that education and training for girls are crucial. It also means that by law and by norms, girls and women should be allowed to decide when and whether to become mothers—which means, among other things, that sexual relations should always be a choice, not a requirement. Here there is an evident link to the earlier discussion of norms and norm cascades, and a particular link to the problems of crime and HIV/AIDS. In fact, a social policy directed against sexual subordination in multiple spheres is highly likely to combat both problems.
MARKETS AND BEYOND
Markets are emphatically human products—not natural but conventional, created by law and to be evaluated in terms of their consequences. The question is what they do to and for the people who are subject to them. Free markets are an engine of both prosperity and freedom. But from the standpoint of freedom and justice, markets do not accomplish enough. From the standpoint of economics, this was a great lesson of the first half of the twentieth century.
At the same time, economic planning is often futile and counterproductive, partly because of the inevitability of unintended consequences, and partly because of the immense difficulty of foreseeing the systemic effects of interventions. In its many forms, planning tends to invite maneuvering by interest groups and produces unanticipated damage, notwithstanding the good intentions of many planners. This was the great lesson of the second half of the twentieth century.
To be worthy of use, any New Progressivism should not be understood as a compromise measure or as steering between two poles. It is unapologetically committed to a certain understanding of the goals associated with the New Deal in the United States. (See chapter 2.) These do not include egalitarianism, understood as equal or roughly equal economic outcomes. But they do include decent life prospects for all, a social safety net, political equality, and an anticaste principle, in the form of opposition to second-class citizenship for members of any social group. Those who endorse a New Progressivism reject the idea that reliance on markets is sufficient to promote liberty at the same time that they seek to go beyond the sometimes sloppy and diffuse set of goals associated with the way of planning. They also place the highest premium on ending sex inequality.
New Progressivists see many planners as analogous to the hapless participants in Dietrich Dörner’s experiments, designing ill-conceived interventions with consequences that confound the expectations of their designers. New Progressivists insist on the importance of civil society and, above all, the norms that often drive behavior. Alert to the possibility of social cascades, those who seek a New Progressivism favor the provision of information and also urge seemingly small steps that can, under favorable conditions, have large effects on behavior.
There is no policy blueprint here, since no country is exactly like any other. But the problems with the way of markets and the way of planning are pervasive. New Progressivism promises to draw on both of the great lessons of the twentieth century, and to build policy on a more secure sense of government’s appropriate ends, and of the means that are most likely to promote those ends.