Contrary to the deterioration hypothesis, we find that market-oriented societies have a greater aversion to unethical behavior, higher levels of trust, & are not significantly associated with lower levels of morality under any model specification

The moral costs of markets: Testing the deterioration hypothesis. Justin Callais, Colin Harris, Ben Borchard. Journal of Economic Behavior & Organization, Volume 204, December 2022, Pages 200-220. https://doi.org/10.1016/j.jebo.2022.10.007

Abstract: The expansion of markets has generated significant material benefits. Yet some worry that this increase in wealth has come at a significant moral cost. Markets may crowd out or even corrupt existing moral values, causing moral deterioration. We test this hypothesis using both fixed effects and matching methods to estimate the impact of market institutions on a society's moral values. Contrary to the deterioration hypothesis, we find that market-oriented societies have a greater aversion to unethical behavior, higher levels of trust, and are not significantly associated with lower levels of morality under any model specification. Furthermore, we find that becoming more market oriented does not cause a significant reduction in a society's moral values. Together, our results suggest that being or becoming more market oriented does not cause moral deterioration.

Introduction

The world is becoming more interconnected due in part to the expansion of markets. And while most people accept that markets generate significant material benefits, there remains debate “concerning whether the wealth that societies gain by embracing markets comes at too high a moral cost” (Storr and Choi 2019: 11). On one side of the debate is the position that markets crowd out or even corrupt existing moral values, resulting in moral deterioration (Rousseau [1754] 1984; Marx [1844] 2000; Radin 1987, 1989; Anderson 1993; Sandel 2012; Bowles 2016). On the other side is the claim that markets actually promote moral virtues, or at worst act as neutral spaces to be filled in by the existing values of the market participants (Mandeville [1714, 1732] 1988; Montesquieu [1748] 1989; Smith [1759] 1982, [1776] 1977; Friedman [1962] 2002; McCloskey 2006; Storr 2009; Storr and Choi 2019). Even though each position presents a testable hypothesis, the debate has largely remained one of philosophical conjecture. This is unsatisfying as the question of the moral costs of markets is “at root an empirical, rather than a philosophical, claim” (Storr and Choi 2019: 12). Do markets cause moral deterioration?

The most thorough attempt at addressing this question empirically comes from Storr and Choi (2019). Their aim is to assess the moral character of markets and the impact that market institutions have on morality, and in doing so provide a plausible retort to both the market's most stringent critics and its most tepid supporters.1 A major contribution of their work is in identifying empirical measures which either directly or indirectly measure morality.2 Indirect measures include variables like income, life expectancy, and infant mortality. These variables cannot directly address the empirical claim that markets cause moral deterioration, yet nonetheless have moral significance. If markets made people worse off on a variety of important margins, markets may be morally suspect regardless of their effect on moral values.

The direct measures capture moral values related to trust, tolerance, materialism, fairness, altruism, and the acceptance of unethical behavior using nationally representative surveys or behavioral variables like how much (and often) people give to charity. These measures capture at least part of the concern critics have over the deterioration of moral values, particularly as it relates to cosmopolitanism and integrity. Sandel (2012: 6) for example, a prominent moral critic of markets, suggests that the “appropriate way” to treat and value human beings is as “persons worthy of dignity and respect, rather than as instruments of gain and objects of use.” Being trustworthy and treating others as equals is a part of it means to treat people appropriately. If market institutions cause moral deterioration, we should expect lower levels of these measured moral values in market-oriented societies.

Storr and Choi (2019: 243) find the opposite: “Rather than being incompatible with morality, markets are not only consistent with morality but seem to promote morality.” Still, their empirical approach is limited, about which they are very forthright.3 We build on the foundation of their work using panel data. We first test the markets-cause-moral-deterioration hypothesis using both fixed effects and matching methods to estimate the impact of market institutions on a society's moral values. Contrary to the deterioration hypothesis, we find that market-oriented societies have a greater aversion to unethical behavior, higher levels of trust, and are not significantly associated with lower levels of morality, regardless of which measure is used for moral values or market orientation.

The results of these tests (section 5.1 and 5.2) are comparable to Storr and Choi's (2019) in that we find that being a market-oriented society is not associated with lower levels of moral values (and in some instances it is associated with higher levels). However, fixed effects and matching methods alone cannot address the problem of endogeneity. Market-oriented societies may have higher levels of moral values and yet the expansion of markets may still deteriorate morals. Thankfully, while our move to panel data reduces the number of countries in the sample compared to Storr and Choi's (2019) cross-section, the added time component allows us to investigate how changes in market orientation impacts moral values. By looking at instances of pro-market reform, we are able to employ differencing and matching to remove time-invariant factors and balance covariates, bringing our estimates closer to causal (An and Winship 2017). With this method, we find that becoming a more market-oriented society does not cause a significant reduction in a society's moral values. Together, our results suggest that being or becoming a more market-oriented society does not cause moral deterioration.

The rest of the paper proceeds as follows. Section two outlines the central claims of the deterioration hypothesis, including the mechanisms by which deterioration is believed to occur and the main moral values likely to be affected. Section three explains our data for market orientation and moral values. Section four outlines our empirical strategy for testing the deterioration hypothesis and section five presents our results. Section six concludes.