The Good and the Just
Ius est ars boni et aequi.
[Law is the art of the good and the equitable.]
PUBLIUS IUVENTIUS CELSUS
A society is a cooperative venture for mutual advantage.… There is an identity of interests, since social cooperation makes possible a better life for all than any would have if each were to live solely by his own efforts. There is a conflict of interests, since persons are not indifferent as to how the greater benefits produced by their collaboration are distributed, for in order to pursue their ends they each prefer a larger to a lesser share. A set of principles is required for choosing among the various social arrangements which determine this division of advantages and for underwriting an agreement on the proper distributive shares. These … are the principles of social justice.
JOHN RAWLS, A Theory of Justice
THE CLASSIC DEFENDERS OF CAPITALISM from mercantile days onward have sought an economy having fewer “interferences” with what they see to be the good in capitalism—the “freedoms” and the “growth”—without a thought for what a just economy is. In the premise of some of these classic defenders, each participant receives in pay the value of his or her contribution to national product, exactly as if each worked in isolation, so it is difficult if not impossible to see what moral claim one sort of participant might have to the pay of other sorts. But this premise is untenable. Seeing high earners (and their capital) working with low earners, we understand there is a mutual gain from the exchange of services. The Progressives of the early 1900s spoke of a “social surplus” from people’s collaborative participation in a nation’s economy: The productivity gains from exchange of heterogeneous inputs—labor, land, and capital—add to the pecuniary reward of virtually every kind of talent, every kind of soil, and every kind of capital employed in a market economy. In a modern economy, moreover, innovations result more frequently, and their average payoff is far greater when separate populations merge into an integrated national economy of large scale and variety. Bill Gates’s new products could not have made him 50 billion dollars without millions of end-users. Thus high earners benefit from cooperating with others and could subsidize the others without going into the red. Yet it does not follow from this idea of a social surplus that, as egalitarian socialists concluded, everyone ought to be paid the same hourly wage. Equal wage rates would not be workable. (Is a would-be innovator to be paid for the hours spent in the garage?) Even if this equalitarian precept were workable, it would remove the pecuniary dividend that many potential innovators would need to induce them to quit their safe positions and make the extreme effort required for innovation.
Some others among the classic defenders, while conceding that the low earners benefit the high earners, jump to say that the high earners, through their capital investment and innovation, greatly benefit the low earners—pulling up their wages and employment. They see no reason why the high earners should dig into their pockets to pay subsidies aimed at further benefiting the low earners. But this view of a market economy is as mistaken as the previous one. The free market sets wages that send signals and present incentives serving efficiency—in some rough and ready way, at any rate—not any ideas of equity. There may be social or economic considerations that would call for modifying the market mechanism through subsidies and taxes to move some market wages and employment in the desired directions. The problem arising in recent decades is that there are so many considerations and so many conceptions of society’s interests, from Jeremy Bentham’s utilitarianism—the “greatest good”—to the socialist idea of a social dividend financed by the state’s wealth or confiscations to corporatist subsidies for anything that special interests can induce lawmakers to legislate.
A breakthrough came with the 1971 treatise A Theory of Justice by John Rawls. A moral philosopher by training, he was responding to the absence of any known notion of what “just” means that is not either unclear or badly flawed. Writing in the turbulent 1960s, when university campuses in America were being torn apart by protests, he could not have missed the acute need for an understanding of justice that a consensus might build around.1 Obviously the context of Rawls’s work in the 1960s—particularly the protests of black activists—has some parallels to the context in which the present book was written—particularly the Occupy Wall Street protests. Both protest groups had only the vaguest of visions and had little or no idea of how to translate it into an operational solution. Rawls supplied a clear vision of distributive justice and said enough to indicate that it could be realized. (It could be said that both the black activists and Rawls showed influences of American thought on work, earning, and opportunity going back to Lincoln and to Paine. Neither the voices of black pride nor Rawls were talking about handouts.)
Rawls starts by sketching general principles of justice based on the idea of a “social contract” in Locke, Rousseau, and Kant and reformulating it “so that it is no longer open to the more obvious objections.” To decide what is just, a society’s citizens, shedding their vested interests, imagine an original position in which they are to deliberate, with no one knowing whose shoes he will be in when their society and its economy begin operations; not even how many shoes there are of this size and that. In this way Rawls was breaking with Jeremy Bentham, whose idea of the “greatest good” had much influence, especially among economists. In the magisterial opening page Rawls writes:
Each person possesses an inviolability founded on justice that even the welfare of society as a whole cannot override. For this reason justice denies that the loss of freedom of some is made right by a greater good shared by others. It does not allow that the sacrifices imposed on a few are outweighed by the larger sum of advantages enjoyed by many.… In a just society the rights secured by justice are not subject to political bargaining or to the calculus of social interests. (p. 3)
This theory, Rawls argues, leads to a precise conception of justice in the distribution of the rewards from work—an element of economic justice in the terminology here—not to a justification of the entitlements of the welfare state, about which he was silent. In this conception, economic justice demands the avoidance, where practicable, of economic inefficiency. So some sort of market economy is necessary for justice because other types of economy would cause serious inefficiencies—everyone’s wages would be unnecessarily depressed. Furthermore, in a world of differing talents and backgrounds, some wage inequalities are necessary because a system of wage equality would be so inefficient as to lower all pay rates, not just high pay rates. (It would cause employers to be stuck with their round pegs in square holes and cause workers to work less or take less productive jobs they had spurned in favor of high-paying jobs, thus a loss of tax revenue out of which wage subsidies could be paid.) Then comes the famous conclusion in Rawls’s argument: inequality in after-tax, after-subsidy wages is just to the extent it serves the working poor—the “least advantaged” working in the economy. The just amount of wage inequality—of the wage gap—is precisely wide enough to deliver the maximum remuneration of the lowest earners.
The new vision and new concepts in Rawls’s book were electrifying and quickly altered the discourse in economics as well as moral philosophy, though the book was scorned by the right for supposedly neglecting freedom, notwithstanding that Rawls had stressed freedom as essential to justice, and criticized by the left, for whom inequality was worse than poverty. Rawls’s attention to the wage may look soulless, compared to cries from the heart against exclusion and violence, but he sees a decent wage as the gateway to a person’s “self-respect” and “self-realization.” He writes poignantly that a higher wage may make it possible to take a son to the ballgame or to participate in school and town meetings, and thus to gain greater social inclusion. The present author’s 1997 book Rewarding Work supplemented Rawls’s argument for redistribution to the lowest-paid: Subsidizing companies’ employment of low-wage workers, by increasing their employment in business, would widen their involvement in society’s central project and open up a sense of the world of work in poor families and neighborhoods. The message applies as much to India as to America.2
Yet Rawls’s book did not hold answers to some fundamental questions about the modern economy that we would like to address to him were he still among us. Though he refers often to “prospects” and “expectations,” his market economy has no dynamism, and the future it brings is always foreseen. In this austere setting, the book has to adopt a view of the “good” that is—in his own words—so “thin” as to exclude the rich facets of the good life from the ancients to the moderns: Instead, the degree of good available to a person is reducible to the traditional things that his or her wage can buy. As a consequence, Rawls did not think through the distinctive issues about economic justice that arise in a modern economy. And his theoretical framework did not help with the justification of that economy—of modern capitalism.
Justice in a Modern Economy
What if in a society everyone had a passion for the good life of Aristotle, Montaigne, and Nietzsche, and every young person hoped for a career in an economy structured for dynamism—thus the fullest opportunity to conceive new ideas and to develop, launch, and pioneer the new products they envision or inspire? For such a society, any good economy would have to be a well-functioning modern economy of some sort. Any economy not offering these would-be participants such opportunity, thus frustrating their aspirations for a good life, would be unjust in the sense of Rawls and many others. What, though, would a modern economy have to look like to be just?
To arrive at answers to questions of Rawlsian economic justice in this economy, a citizen could ask herself how she would decide a question from the viewpoint of the Rawlsian original position: she knows she would pursue the good life but does not know her chances of being gifted in imaginative powers, curiosity, intuition, pioneering spirit, and other capacities of value in that pursuit. In that original position, the argument goes, she would favor the broadest opportunity to start a business, the broadest access to capital from the financial sector, and the broadest access to legal protections. In short, she would favor equal opportunity: if it were unequal, she could be one of those shut out. (She would also favor affirmative action in anticipation she could be one of those not receiving as much access as some others.)
What in a modern economy would justice in income distribution involve? A modern economy is striking for the extraordinary income—oversize profits and capital gains in anticipation of profits—that accrues to those whose new idea or whose entrepreneurial development or marketing of a new idea led to a successful adoption in the marketplace. Since those working under the direction of an entrepreneur are paid wages in anticipation of the chance of commercial success, there are also losses and capital losses to deal with. Varying parts of these incomes would be spent or accumulated to pay for the use of others’ new products and for helping to finance one’s next innovative venture or finance someone else’s new project. Thus there is a so-called circular flow. In this way, income and wealth would come to be highly valued, even if tangible capital is not going to be very important. A citizen who puts himself in Rawls’s original position might, at first, be against taxing the winnings of the winners to cushion the losses of the losers. With more reflection, however, he might see that such redistribution would encourage risk taking by the private sector: the government, as a partner sharing in the gains and losses, is reducing the risk of the private parties. On still further thought, though, the citizen in the original position might wonder why society should encourage risk taking. Why would I want to see the state encouraging more high-risk investing and pure gambling when what I want is to participate in an economy of dynamism? And I might like the frisson of excitement that comes from a leap of faith, a voyage into the unknown. So a citizen, knowing what the good life is but not knowing his endowments, would not be interested in the government’s taking a share of the profits to mitigate losses—and certainly not to mitigate losses on failed investments that had nothing to do with innovation.
Taxing profits is widely thought to be necessary to do justice to workers, not to finance cushions for failed innovators. While Rawls’s book is about just wages, its focus is on the redistribution of ordinary income—in particular, the redistribution of wage income from high-wage to low-wage earners.3 There is no profit income in the non-modern, even classical, economy that is the setting for Rawls’s book and for the basic public finance literature—aside from profits arising from monopoly, which would be a distraction here. The subject of economic justice in an economy of dynamism, though, raises the question of taxing the profits from innovation to subsidize labor. (Note that any resulting increase in after-tax, after-subsidy wage income in the economy would in turn make feasible a higher general tax on labor from which to finance a higher employment subsidy to the disadvantaged.) But this pot of gold is chimerical. It is not established as an empirical matter that taxation of profits garners increased revenue for use in boosting pay of low-wage workers. It is theoretically possible that taxing profits ultimately lowers wages by dragging down future levels of productivity more than it raises wages by collecting more revenue at any given level of national product and national income. So we cannot conclude that just taxation, even from the Rawlsian perspective on wage rates, would call for taxing the profits of innovation.
Of more fundamental importance, it is not clear in the present setting, in which all persons aspire to the Aristotelian good life, that all tax revenues must be allocated to boosting through employment subsidies the wage of the least advantaged participants. It is possible that even they would rather see tax revenues used to lift the dynamism of the economy than to subsidize their employment. Even if the least advantaged care only about their wage, there may exist government projects that do more—dollar for dollar—to raise low-wage employment and thus pull up the lowest wage rates than employment subsidies would do. These would include government projects that would remove large blockages to efficiency or to dynamism. It is unfortunate, though, that the least-advantaged are seen to be part of what Marx dubbed the lumpenproletariat, in whom he evinced little interest, rather than humans in the normal range who are to a degree engaged in what they do and welcome the problems and opportunities that it may present. That view has led economic policymakers of a Rawlsian complexion to assume that for the least advantaged only the wage can be appreciated. That workers, even the least-paid among them, have interests besides their pay suggests that workers might not choose—in the original position or in the voting booth—to have the government spend all its tax revenues on their subsidization. They might take an interest in a national project that seizes their imagination. It is a little too narrow to view Rawlsian justice as fully met if there is an annual budget that clears away all the obstacles to efficiency and to dynamism that have arisen over the past year, then allots to employment subsidies what, if any, remains of the budget.
There are other topics of economic justice besides intervention through fiscal means in the life prospects of persons after their talents and capacities are already formed. A classic topic is early intervention in the education of children disadvantaged by their social circumstances—a subject of the economist James Heckman. It can be argued that justice in a modern economy requires the state to take action to address in the early schooling years the disadvantages among people that would impair their ability to compete on a level playing field against others engaged in attempting innovation. (It would be anomalous for the state to spend, say, 5 percent of national income on raising wages of the disadvantaged and not a penny on raising the potential wage of people with poor wage prospects.) Although most citizens already know that their children are normal or better than normal, they can mentally insert themselves into Rawls’s original position to consider in an unbiased way what would be a just level to bring the least-advantaged children up to.4
Justice amidst Multiple Human Natures
A Theory of Justice gained simplicity in its treatment of the good by supposing that all members of the society seek the “primary goods” and they all understand that one’s wage is the means to them. The section above on the modern economy, in its treatment of the good, gained simplicity by supposing that all members of society seek the good life as Aristotle and his humanist successors conceived it, and they all understand that having work that is interesting, challenging, and adventurous is necessary to that life. That premise was not as fantastic as might be assumed. In America from the 1870s to the 1960s—the high years of modern capitalism—humanities courses invited students in elite schools to sense and identify with the human condition and the set of values and beliefs that run through Western history. At Columbia College in the presidency of Nicholas Murray Butler, the required course Contemporary Civilization, a course in history and philosophy, was started by John Erskine in 1919, and the required Humanities A, or HumLit, in 1937 by Jacques Barzun and Lionel Trilling. At the University of Chicago, the Great Books program, developed by Mortimer Adler and instituted by presi dent Robert Hutchens, started in 1942. At Amherst College, a humanities course from 1947 to 1968 led all freshmen through a pantheon of epic leaders, truth seekers, humanists, individualists, vitalists, and pragmatists—all to prepare them for former president Alexander Micklejohn’s “life worth living.” Anthony Kronman, a teacher of humanities and law at Yale, writes of the humanities course in America from Charles Eliot’s rise to the presidency of Harvard in 1869 to the “watershed year” 1968:
There are patterns of life that have had a perennial attraction for human beings.… The humanities acquaint us with the core commitments of these patterns.… Understanding [them] can never eliminate [our] demand … to live a life that recognizes, honors and expresses our own uniqueness … [n]or can it ever by itself answer the question of what living is for.… But the humanities can give us guidance.… [The humanities course] … invited each student to see himself as a participant in a “great conversation” … to think of previous participants—poets, philosophers, novelists, historians and artists—as addressing each other in a long, unbroken conversation about the most important matters in life.… Shaped by its belief in the validity of the idea of human nature and by a confidence in the perennial significance of a limited number of exemplary types of human fulfillment, [the humanities] formed, for many years, the core of a program [on] the meaning of life.5
It appears that these humanities, while welcoming the diversity of talents and career preferences in any human society and recognizing the variety in the “forms” of human fulfillment that result, discern a “human nature,” a nature that is universal from the time when humans used caves for flute concerts. This common nature includes—at the highest level—a desire to express creativity, a relish for challenge, an enjoyment of problem solving, a delight in novelty, and the restless need to explore and to tinker. The pursuit and experience of these “highest goods” is the way to human fulfillment—and to “becoming,” which is a large part of it. This human nature and this human fulfillment is displayed by artists and scientists, for example, and by a wide range of less unusual people, including business people, engineers, physicians, and lawmakers. These people are often called “modern” because this way of life—this dealing in new ideas—and this human fulfillment became endemic only after the ideas of the late Renaissance, the Scientific Revolution, and the Enlightenment ushered in the modern societies with modern economies that arose in the 19th century. But the potential for this life and this fulfillment was always there, witness some of the impressive figures in the pre-modern societies, such as the incessantly questioning Socrates, the clever Cleopatra, the venturesome Leif Ericson, and the visionary Catherine the Great.
Yet there has always been another view. In the present day, there are dissenters to the humanities who suppose that there is not simply a variety of “forms” of human fulfillment: There exists another kind of human fulfillment, which many are still finding. This movement points to those people, even in today’s relatively modern societies, who flock to callings that do not promise human fulfillment as the humanities know it. In some of the more traditional societies, such as southern Italy, the occupation of women is preponderantly in the home, where they take care of their children and their husbands. In very traditional societies, the occupation of many men is often in the church, where they serve as priests, ministers, rabbis, or imams. In all societies, some men and women take up employment as caregivers in a nursing home or a hospice; some others prefer positions in nonprofit organizations aimed at a cause, such as the environment, to work in an organization where the individual’s own benefit is not the objective. In these lines of work, there is relatively little prospect, if any, of experiencing exploration or creation. There is no one here like Cellini or Chanel.
The orientation of many people, even in the most modern economies, toward family or community or country or religion—or, these days, the earth—harks back to the traditions in Western societies until the modern revolution. Today’s traditionalism—a harkening back to the pre-modern traditions—presents an opposition to modernism like the opposition between Platonic “being” and the “becoming” of Montaigne, Nietzsche, and Bergson. Montaigne associates the former with the transcendental and the divine. The preference of some people for a traditional vocation such as caregiving in spite of its relatively static character may reflect a love of God or love of community that is greater than their self-love, thus greater than any stirring to seek human fulfillment as Aristotle or Montaigne or Nietzsche or Bergson conceived it. (To speak of that sort of satisfaction from such a traditional occupation as “human fulfillment,” or “flourishing,” would be to deny those terms their accustomed meaning. If fulfillment were so broadened, what activity by a free, healthy, and sane adult would not be said to be a way to fulfillment?)
The question here is what we should understand Rawlsian justice to entail in an economy in which people of a different human nature, thus apt to pursue an alternative life if the terms are not prohibitive, coexist with people having the nature portrayed in the humanities—the “human nature” that Aristotle and the moderns had in mind when speaking of the good life. Certainly the freedom of people to act on their own human nature, no matter if it deviates from the human nature central to the humanities, is basic to Rawlsian justice. But the just treatment of persons engaged in their very different pursuits is less obvious.
Late in his career, Rawls finally underlined something that was implicit earlier in his book: His distributive justice, by its very definition, applies to those whose work contributes to the income generated by society’s cooperative venture, its economy, not to hermits and others who stand outside it. Rawls stated bluntly, lest there be misunderstanding, that those who “surf all day” are not in his category of the least-advantaged contributors. “Surfers must somehow support themselves” without benefit of surfing subsidies.6
The activity of people in the home—managing the household or raising children—is essential to society as we know it. (A recent OECD study reports that the time spent by Australian men in cooking, cleaning, and childcare has risen to 3 hours a day and is still much higher among women.) And we are sensitive to the fact that, for some, this is a “lesser life,” in Sylvia Ann Hewlett’s striking characterization.7 Yet this activity is also not to share in the Rawlsian redistributions of income. The redistributions in Rawls’s theory are made from the economic surplus created by the contributions of paid labor, and it is redistributed to paid labor. Mothers, for example, have no claim to this surplus, since they have no hand in producing it; what they produce they produce for love. (Our intuition suggests there ought to be redistribution of the nonpecuniary benefits within the home, though that may be difficult.)
By this logic, it appears that those who, out of a sense of service or devotion, find an occupation in a volunteer sector where there are no receipts from which to pay them an income—volunteers at nonprofits caring for the environment, caregivers tending to the penniless, priests ministering to the faithful for only a bed and a meal, and so forth—would likewise have no just claim to receive a Rawlsian subsidy, since there is no income generated that could be redistributed, and nothing is left for them from the “social surplus” after it has all gone to the lower-paid among those who produced. If this sector does have receipts per worker from which to pay these workers a wage, say, the wage rate of the lowest paid in the economy, that would not alter the fact that they have no just claim against the social surplus produced by those pursuing the good life in the economy. That may seem counterintuitive. Wouldn’t a citizen meditating in the original position and recognizing the possibility that she might be one of those persons of another nature, thus devoted to another life, decide that justice requires paying the Rawlsian subsidy to those whose calling is the cause of low wages just as much as to those whose productivity is the cause? But the Rawlsian subsidy is paid out of a calculation of equity, not need or deserts. To be eligible for the prizes one has to play the game. Not some other game.
There is also the issue of the thrust of the state beyond its responsibility for distributive justice and efficiency. What would Rawlsian justice allow? The section above observed that the state may take opportunities to repair dysfunctions in the economy that are a drain on its dynamism, just as it may take opportunities to address inefficiencies. Such activities are not unjust from a Rawlsian perspective if the benefits compensate the low-wage workers. But now we are acknowledging that some working-age members of society are active in pursuit of a radically different kind of life. The citizen in the original position might think it is in his self-interest to temper the state’s promotion of dynamism in service of the good life and reallocate it in the service of the other kinds of life, since he must anticipate that he may turn out to be one of those who march to a different drummer. But he ought to think again: The state’s programs and agencies in service of dynamism, while benefiting the working poor among others, come out of the pockets of the working poor. The unknown risk of being drawn to a different life is not a coherent justification for siphoning some of the rewards of the least advantaged in the economy to those who exit from the economy for another life, as if the latter were disadvantaged collaborators. They are not disadvantaged, just different, and they are not collaborators in the production of a redistributable social surplus.
A Liberating System Not Shown to Be Unjust
The discussion above has been about adjustments and extensions that a modern economy would require to be not simply well-functioning, meaning without major malfunctions, but functioning justly. That discussion leads to the final question: Whether the modern economy, when well and justly-functioning, would be a just system. Rawls’s principle was that a just economy is one with a structure that would make the prospects of the least advantaged higher than they would be in any other system. In his elaborations toward the end of his book, Rawls, whose descriptions of market economies, capital and socialist, were basically classical, was unable to say which one was just: a pre-modern capitalism or a pre-modern socialism; the differences separating them were not decisive in his eyes. But a thoroughly modern society, in which modern values are broadly held, would see the modern-capitalist economy and the standard alternatives, such as market socialism and corporatism, as being worlds apart.
The present book, after comparing the main alternatives, sees reasons to believe that a modern economy, when functioning well and justly, is tailor-made to produce the flourishing and personal growth that are at the core of the good life. The book then finds a range of evidence that a modern-capitalist economy is outstanding in the prospects it offers ordinary people for the good life: The economies relatively strong in modern values and with relatively muted traditional values generally perform better in all the metrics of the good life—job satisfaction, unemployment, and wage level. With that evidence in hand, a member of a thoroughly modern society, placed in Rawls’s original position and assuming that he might be among the least advantaged, would have good reason to decide that the modern-capitalist economy, if justly-functioning and well-functioning, was the right choice to make. (A member expecting to be the most advantaged might prefer a planned economy in hopes of being the czar.) It would offer the least advantaged better prospects for a good life than socialism’s bureaucracies would or corporatism’s cronies and clientele. (In a short while, however, a case of pluralism of values will be taken up.)
Of course, anyone making that defense or any other defense of the modern-capitalist economy must be conscious of the deep antipathy that many people have expressed for capitalism, modern or pre-modern. The antipathy for the great mounds of wealth in private hands and for the acquiring of great wealth is particularly strong. In some reflections following his exposition Rawls writes:
What men want is meaningful work in free association with others, these associations regulating their relations to one another within a framework of just basic institutions. To achieve this state of things great wealth is not necessary. In fact, it is more likely to be a positive hindrance, a meaningless distraction at best if not a temptation to indulgence and emptiness.8
It is true that exaggerated estimations of one’s wealth lead to excessive demands for leisure and consumption, thus to reduced employment as well as reduced investment and innovation. Trying to justify modern capitalism as a machine for accumulating wealth could not be more crass. Yet, despite its ill effects, people’s wealth is bound to soar in the event the product or method they work on turns out to be a highly profitable innovation. And, as remarked before, a chance of extraordinary pecuniary benefits helps motivate people to work on projects that may prove lucrative. So it is not inherently unjust that large inequalities of wealth emerge in modern capitalism; it is in traditional societies that the large wealth inequalities are apt to be neither inherent nor just. Furthermore, wealth has a positive side. It is unnecessary to say that if a person’s wealth increases and others’ wealth does not, that person will be able to live better in every way. But even if everyone’s wealth is increased (by the same amount or in equal proportion), people will then be better able to afford to pursue their interests and express their personalities and their values.
Yet many a social critic speaks of an “injustice”—some inherent flaw that some other sort of system does not have—that renders a modern economy—even one outfitted for economic justice, such as economic inclusion—“unjust.” There are at least three broad dimensions in which the modern economy might conceivably fall short. Some other sort of economy, perhaps only a variant of the modern economy, might offer greater prospects of the good life or offer those prospects to more participants than the modern-capitalist economy offered, or offer a better life than the good life in its various classic descriptions. And in the universe of potential alternative economies there must be some as yet unknown star that burns brighter than the modern one. It would not be feasible to sift through the whole litany of objections raised. But the claims that a modern economy is unjust, no matter how well-functioning and justly-functioning, has to be discussed.
Critics of modern capitalism, however, tend to argue that the modern-capitalist economies—and maybe all other economies—are unjust relative to some economic system that they envision but that is not built. Famously, socialists of the 19th century, before there was a socialist economy, supposed that it would offer wider prospects for employment and higher wages than the modern-capitalist economies could. Once built, however, the socialist economies were seen to offer poorer wages and lower employment than the modern-capitalist economies had—those that were left standing after the onslaught of socialism and corporatism.
The corporatists of the 20th century envisioned a state-led economy that served well the aspirations of a largely traditional society. Once corporatist France and Italy had a track record, however, it could be seen that state power had not generated the promised dynamism, so they could not sustain rapid productivity growth and low unemployment beyond the 1990s.
By 1970 social critics in the West envisioned a new sort of economy that would pay a lower price for the good life. The new economy was supposed to offer the prospect of substantial economic stability. But the economies that continental Western Europe claimed to be buffered against instability through heavy job protection and large public sectors, such as those in continental Western Europe, had nothing to show for it: They had low employment and major slumps. And they have paid a steep price: They have little or no dynamism and, as a consequence, underdevelopment, low employment, and not necessarily stable employment at that.
There are plenty of economies in human history that offer more stability and equality than any modern economy ever did. But observation over modern history does not turn up alternatives to the modern economy that deliver less inequality and less instability while delivering no less of the good life.
The modern economy has met new criticisms in recent decades: Portfolios must be balanced; growth must be balanced rather than running in one direction, as in the internet boom; and global imbalances in saving and investment must be corrected. These criticisms seem not to understand that the genius of a well-functioning modern economy is its deployment of the insights and judgment of people immersed in the economy in the economy’s decisions about the directions in which a nation should best invest:
The IMF claims a mandate to address “economic imbalances” … because it would be good for world stability. But what is the purpose of a private international credit market if not to permit a nation enjoying an investment boom to borrow abroad and a nation in an investment slump to lend overseas? … Next, the IMF speaks of “crisis prevention.” The zero tolerance for financial crisis suggests that the IMF has lost sight of the rationale for a well-functioning modern-capitalist economy. Several Western nations have sought to maintain it not because Stalin’s Gosplan could not get the relative prices of nuts and bolts right but because the pluralism of entrepreneurs and investors, all with differentiated insights and experiences, is an inspired way to manage the uncertainties that creating new futures entails.9
To regard as a flaw the tendency to crash in an economy with the creativity of the American economy—during most of its history, at any rate—is like calling the tendency toward swings between mania and depression in deeply creative people a flaw. It is easy to understand that, in an economy possessing dynamism, a failure to work out new ideas or a dry spell without new ideas may bring on depression. (Of course, the loss of local and regional banks in the past decade and consequent loss of expertise in lending constitute a new dysfunction in economies that had been in the forefront of modern economies. But these pathologies do not represent an injustice in modern economies. The dysfunction can be corrected.)
A provocative critique has arisen in recent years: The good life has been conceived too narrowly. It requires a “balance” between work and home. And the modern economy, which is voracious, leaves not enough time and calm for domestic life and childcare. Here the critics do not want to take issue with the good life so much as to broaden it to the home. They suppose that a new economy can be created in which participants can “have it all”—the rich domestic life and close involvement with children that may have been a feature of the traditional societies centuries ago without loss of the dynamism of which a modern economy is capable and the flourishing that is its most important fruit. But talk of a “work-life balance,” as if work were not integral to life, casts doubt on whether these critics have understood very well the good life and the conditions on which it depends. A flourishing life in the world of work can come only from an emotional commitment that leads to deep involvement in the work—it cannot be had on the cheap. If going to a four-day workweek or putting a nursery in the offices were found not to lessen employee engagement and effectiveness in many kinds of companies, such companies would have done so. Imposing those practices on companies (through a tax or a fine) would cost companies some employee engagement and thus some of their vibrancy and their dynamism. One company after another has learned that robotic production can be done by employees at home, but innovation requires an office for employee interactions.
A deeper point is that home life cannot be part of the good life unless it too is rich with challenges and hurdles. Some people may at some time find more challenge at home than in business, but they cannot expect to find more flourishing by cutting back on challenges and hurdles. The author Katie Roiphe makes the argument:
Why is balance necessarily good? Isn’t part of the skill or joy of life in the imbalance, in the craziness, in the bizarre or implausible intensity? … I am a single mother with three jobs. But I have come to see that there is a kind of exhilaration or happiness in the chaos itself.… [T]he human psyche is too complicated, too messy, too elusive, for problems to be solved by “balance,” by “healthy environments,” by the sheer stubborn physical presence.10
These visions of an alternative to the modern-capitalist economy all evoke magical thinking—a belief that for any worthy goal there is always a way. But modern thinking tells us that we have to choose among our ends—that we cannot have it all.
The question of the justice of a well and justly-functioning economy is quite different for a society in which one or more elements seek different kinds of life—a life of caring for others or a life of contemplation or a life devoted to family values. Such a pluralism of values—traditionalist ethics alongside modernist ethics—came up in the discussion above of the subsidies to the least-advantaged workers that are required by economic justice in a modern economic system; here we discuss the system required for justice. The crux of the matter is that in any modern society there exists an economy based on exchange, which the modern society supports for the mutual advantage of those who participate in it, while those from the one or more dissenting cultures want to opt out of that exchange system in quest of their dissenting goals. Some social critics appear to believe that it is an injustice of the modern-capitalist economy that it does not provide a space for participants motivated by traditionalist values. In the perspective of this book—the perspective of Kant, Rawls, and some others—justice requires that those who want to pursue a traditional life ought to be free to work and earn in a traditional sector, just as those who aspire to the good life in its classic descriptions must be free to work in the modern sector. (In this diverse society, resources in one economy would be remunerated from what it produces and resources in the other would work without compensation or be paid out of charitable contributions.) It would be a grotesque injustice to consign those with modern values to an unmodern economy relatively devoid of change, originality, and discovery.
Of course, the state will be called upon by people in the original position to protect the ideals of the various traditions, such as traditions of caring. Justice requires tolerance of other lifestyles and thinking, but it does not require those who would pursue the good life to engage in self-denial or to surrender to those styles. Justice does not allow the traditions of the others to so constrict the modern economy as to block the expression of its dynamism in innovative activity and thus modern life.
In this kind of pluralistic society, it might turn out that each ship floats on its own bottom, neither economy cross-subsidizing the other. However we may regard that, it is not an injustice. Justice in the sense of Rawls does not require the modern sector to transfer money to the traditional sector for work subsidies or for any other purpose, since Rawlsian justice in the modern sector is about equity in the distribution of the fruits of that sector. If, however, participants in the modern sector unanimously want the government to subsidize the traditional sector, it would be just to do so. And there is no injustice in individuals donating to that sector. In America, a sector of nonprofit corporations and charitable foundations has become large owing to philanthropy, though some philanthropists acknowledge that their contributions are encouraged by the tax benefits granted by the government, which are apt to lessen the revenue left for the working poor.
We have been discussing justice toward traditionalist elements in a modern society—a society in which modern values have prevailed and created an economy in which the modern sector predominates. Justice is done to those with heavily traditional values by permitting them to operate in a parallel economy and, since that does no harm to the modern economy, justice is done to those with modern values too. (The parallel economy might help the modern economy by drawing away those whose traditional values might make them costly employees and might demoralize the other employees.) It is worth touching on justice toward modernist elements in a heavily traditional society. The problem here is that, unless those with modern values are a tiny minority, allowing them to freely develop and operate a modern sector would have unwelcome impacts on the traditional majority. After all, the counter-revolution of the corporatists against the encroaching modern business economy was set off by the harms that the traditionals felt at the hands of the moderns. Responding to that problem, the state in some European nations—Italy and to a lesser extent France, for example—established penalties and barriers that put a curb on the vibrancy and the dynamism of the modern sector—the sector “parallel” to the sector containing rural industry, state enterprises, the central government, and the church. (And this “parallel” sector was so small in relation to the force of the traditional culture that the latter dragged down entrepreneurship and innovatorship.) The European nations did not generally allow a modern economy to flower, nor did they encourage their citizens to seek lives of nonconformity, creativity, and adventure. Prevailing attitudes and beliefs did serious injustice by blocking and even discouraging the moderns from their pursuit of the good life.
So, though one might think at first that the European nations having strong traditionalist values were perfectly just in installing highly corporatist or socialist economies, much as nations having modernist values were just in welcoming modern economies, the truth is that the traditionalist societies barred ordinary people from chances to pursue the good life—while the modern societies did not bar people from finding traditional lives in nongovernmental organizations, foundations, nonprofits, churches, and the home. And that was unjust.
We do not need to remind ourselves that actual modern-capitalist economies do exhibit injustices, as do actual corporatist economies. The most glaring one is the omission of sufficient measures to pull employment and wages of the lowest-paid employees up to much higher levels, though nations with corporatist economies have similarly failed. Another glaring injustice is the practice of inflating disposable incomes through undertaxation and enactment of entitlements that will not be paid, though private and social wealth are puffed up in the corporatist nations too. But these injustices could be corrected if only the beneficiaries understood the fallaciousness of their excuses. However, being neither inherent nor peculiar to a modern-capitalist economy, these injustices do not show that modern capitalism itself is unjustified. It is only marred.
If the argument of this book is right, then, a modern-capitalist economy is justified—in nations where it can function well and justly and where modern values are prevalent enough to operate it, at any rate. Of course, it is possible—perhaps likely—that, in the future, some subsequent system will come to be seen as the just system—until such time as it too gives way to another system.
To conclude: The advent of modern economies was a godsend for the fortunate nations to which they came. From the mid-1800s to the mid-1900s, the first modern economies—all of them more-or-less modern capitalist—were marvels of the Western world: They brought economic dynamism, a phenomenon never before seen or imagined, and they brought broad inclusion, which pre-modern capitalism had only begun to do. The new economic system got its dynamism and its inclusion by enlisting the imagination and energy of participants from the grassroots on up. The innovation they caused could not have been so extraordinary had it not engaged the mind and seized the imagination of participants down to craftsmen, day laborers, farmers, traders, and factory workers.
This book finds that, far from being a system of materialism, coarseness, Babbitry, Philistinism, and greed that stands in the way of the good life, the modern economy answered a widespread desire for the good life. It arose out of the modern movement for emancipation from traditional societies with their suffocating feudal economies and from the routine and desolation of mercantile capitalism—a system Smith found uninspiring. The mass engagement in innovation and the mass flourishing that resulted from the modern economy perfectly illustrated the Aristotelian perspective on the highest good and the Rawlsian perspective on justice. This system for mass flourishing was the treasure of the modern era—of the modernist values arising from Pico, Luther, and Voltaire to Hume and Nietzsche.
Yet the older myths of economic success have not gone away. They do not see the possibility of dynamism in private enterprise. In one such story, a nation’s freedom relative to freedom in other nations determines its relative economic success. But while freedom is obviously necessary for innovation, it is not sufficient. Freeing people to do a thing may not prompt them to do it. Often one has to make one’s freedom by taking the plunge. Another story lays economic success to the discoveries of science, not those of business. But this story fails to explain why some nations “took off” and other advanced economies did not, and why the take-offs began in a lackluster period for science. Yet another story says that fast innovation in a nation can be achieved by the public sector—faster than what, if any, the private sector can do. It is not seen as significant that no nation has done any such thing yet—unless we relabel Bismarck’s German economy as state-driven rather than modern capitalist.
Getting our theories right is going to be crucial for the West and the East too in the next decades. America is unlikely to recover the dynamism and resulting prosperity it had up to the 1970s as long as it operates on the belief that freedom is sufficient to do so, and that freedom can always be dialed up by a downward adjustment of tax rates as required—this is a great mistake. Modern values and traditional values are both consequential. The modern values that fueled the dynamism of old may have declined—and the opposing values of traditionalism have surely surged—more than fiscal policy can manage to offset. The cry of politicians for a rebirth of traditional values is about as loud as their cry for a rebirth of economic dynamism. As a result, the political parties continue to talk as if prosperity will return once agreement has been reached on fiscal measures of sufficient strength.
Europe will not recover to the respectable levels of employment it had in the 1990s, let alone regain the high prosperity of the early 1900s, as long as it clings to the belief that a corporatist economy—with the right state control over private capital—can achieve the stability and harmony that capitalism cannot, and can do so without any loss of the dynamism it had when its economy was more modern. These beliefs have not met the test. Yet Europe continues to operate a stultifying corporatist economy under the tyranny of traditionalist values.
If modern values are so important for careers of creators, inquirers, and explorers in the economic sphere, thus for a good economy, it might be wondered whether they are also important elsewhere in society. De Tocqueville noticed that they were. He recognized that America, a nation most conspicuous for its broad and intense engagement in the economic system, was also remarkable for its broad and intense engagement in the political system. As a result, there was flourishing in both spheres. For flourishing to occur in the political sphere there had to be a grassroots democracy that was in many ways the counterpart of the grassroots dynamism.
Anyone living today may have noticed that, in this respect, Europe is in a bad way in its political sphere as much as in its economic sphere. As Amartya Sen writes in “The Crisis of European Democracy”:
Europe cannot hand itself over to the unilateral views—or good intentions—of experts without public reasoning and informed consent of its citizens. Both democracy and the chance of creating good policy are undermined … when ineffective policies are dictated by leaders.
Similar points apply to economic dynamism, some of which have been made in this book. Innovation and broad flourishing are undermined when many of the directions taken by business are set by economic policy, when the formation of new businesses looks increasingly limited and managers are selected from elites to negotiate with government and community, and when companies are so large and hierarchical that workers of ordinary skill have no way to express innovative ideas and no incentive to conceive them.
In a society capable of modernity, then, the standard for a good and just political system is the standard for a good and just economy. The requirement for the good and the just in a modern society is the same in both the political and economic spheres.
1. I shared with Rawls some of the turmoil. We had adjoining offices in 1969–1970 at the Center for Advanced Study in the Behavioral Sciences in Palo Alto, California. One winter day, looking down at the Stanford campus, we could see smoke rising from Encina Hall. Radicals had occupied it and set it on fire. Later they attacked the Center, burning the bank of offices where we worked. Rawls’s manuscript survived, as did mine, though a nearby one was a total loss.
2. A recent opinion column by Bharat Jhunjhunwala in Tehelka: India’s Independent Weekly Magazine on May 7, 2012, condemns the unemployment compensation scheme proposed by Akhilesh Yadav, chief minister of Uttar Pradesh, and advocates employment subsidies instead:
Phelps has suggested the government must give employment subsidy to the employed.… People could benefit from the subsidy only by engaging in productive work … That is precisely what Gandhi had said in Young India of 13 October 1921: “I must refuse to insult the naked by giving them clothes they do not need instead of work which they sorely need.” Yadav should listen to Professor Phelps and Mahatma Gandhi. He should devise schemes that create demand for workers and provide relief to the poor through productive work.
3. In the 1970s, the book prompted a spate of papers in academic journals that, building on analytics developed by James Mirrlees in 1971, created theoretical models of the effects of the structure of taxation on wage incomes and identified the structure that was theoretically optimal on Rawls’s criterion of maximizing the lowest wage, known as the “maximin” criterion. One of these was Phelps, “Taxation of Wage Income for Economic Justice” (1973). Another paper studied whether Rawlsian justice required the taxation of interest income to subsidize labor.
4. If it is agreed by citizens in the original position that justice requires the greatest feasible prospects for the less advantaged, the citizens will also quickly agree that the state must raise its expenditure level on disadvantaged children to the point where the benefit of an additional billion would be less than the benefit of simply putting the billion into employment subsidies or into activities that raise dynamism, which would indirectly raise the prospects of the least advantaged. Rawls would have added that, as the principles of justice do not allow the wages of the more advantaged to be hammered down to the wage level of the less advantaged, so the same principles do not allow the state to slow the pace of education in the schools so that more of the less advantaged can keep up with more of the others. In any well-functioning economy, modern or not, the talents of the most-able people and the capacities of average people are a resource to be drawn on for mutual gain. If choked off, the working poor would be in a desperate plight.
5. Kronman, Education’s End (2007, pp. 78–87).
6. Rawls, Justice as Fairness (p. 179). Rawls then appears to suggest in further comments that one could not safely infer that the surfers are as badly off as the worst-paid workers, since the surfers rejected work and do so even after a subsidy pulls up the net wage of lowest earners.
7. Hewlett, A Lesser Life (1986).
8. A Theory of Justice (p. 257).
9. Edmund Phelps, “IMF Seems to Have Lost Sight of Rationale for Capitalism,” Financial Times, letter to the editor, April 25, 2000.
10. Katie Roiphe, “There Is No Such Thing as Having It All,” Financial Times, June 30, 2012.