49. The ways we allocate resources
In the last post, I talked about the ways economists allocate resources and I argued that these human methods can be more properly be treated as a subset of natural allocation systems. The market is not the only way for humans to do this. Indeed, human systems are fundamentally political and only secondarily economic. Power, whether in the form of government rules, societal norms, market monopoly or mafia-life “offers”, is the stock-in-trade of political economy. In the last post, the emphasis was mainly on nature and our inescapable place in it. Here I put the emphasis on our actions, specifically: How can and should we choose to allocate resources?
First, we can use markets, either in the perfectly competitive ways envisaged by Adam Smith, or in more modern forms where capital dominates. The main difference between them is the extent to which monopoly prevails and the subsequent rents that the owners of capital can gain from them. Some commentators like Graeber and Varoufakis argue that economies have changed from feudal serfdom through a phase of broadly competitive markets, through domination by real (productive) capital to a domination by cloud capital or “techno feudalism”. Over the last few hundred years, these various market forms have been the dominant forms of resource allocation. Barter can be seen as an inelegant or primitive form of market allocation.
The invisible hand of the market has varied in its visibility but there has always been an element of planning by suppliers and even customers and often states themselves. In planned economies the opposite is true: planning may dominate but there is usually a market, to a greater or lesser extent. The plans may be centralised by the state or decentralised with coordination. On a smaller scale, resources can be managed by communities as shared resources, or commons, where collective decisions are made regarding use and distribution. Commons are often used to prevent overuse of limited resources. A well-known example is the lobster fisheries of Maine.
Two further methods of allocation were suggested by Karl Marx in a single phrase:
“From each according to his ability, to each according to his needs”.
In needs-based allocation, governments, typically, assess the needs of individuals and allocate resources based on criteria. It applies in cases where: the need is urgent and extreme, such as in humanitarian contexts; the recipient faces significant detriment and is or would be voiceless or powerless otherwise, such as in healthcare, education and housing; and/or, the need is assessed communally, such as vaccination.
Aristotle’s view on ability is a complete contrast to that of Marx, although not necessarily in contradiction. To paraphrase in the latter’s style, Aristotle said: To each according to his ability. That is, if we are to get the best out of people, we must give them the best tools. We, as a society, will have the best music if we give the best flutes to those with the most talent to play them. Here, resources are allocated to individuals or groups on the basis of achievement, contribution, effort or potential. For Marx, the source of resources is based on the ability to provide them.
Another set of allocation systems seeks fairness where arbitrariness seems to be a virtue. Many of these cases apply where demand exceeds supply. If the market allocates according to spending power, and Marx allocates according to need, random or lottery systems allocate blindly. Queuing has some similar features but rewards a combination of patience and effort. Rationing gives everyone the same sized slice of the pie.
Social considerations form another group of allocation systems. You would almost certainly feed your baby before or rather than that of a stranger. This example of nepotism is far from the only acceptable one; in many circumstances, we give some form of priority to our family and friends. In many societies, some resource allocation is governed by traditional rules, customs, or religious principles. With some similarities to barter, in a gift economy, resources are distributed based on reciprocal generosity and social bonds rather than through a formal market.
The choice over which method to use is essentially political rather than economic. There are many “natural” ways to allocate, not just one. The best choice is usually context dependent so, in reality, we live in a world where we use several allocation systems, not just a “free” market. This is the way it should be.
Michael Sandel is a very effective opponent of the marketisation of non-market processes. He approaches the question of allocating resources by looking at political considerations, specifically justice:
“To ask whether a society is just is to ask how it distributes the things we prize - income and wealth, duties and rights, powers and opportunities, offices and honours.”
You would expect this allocation to be wider in its scope than the market but libertarian economists, such as Levitt and Dubner would have you believe otherwise. They wrote of economics:
“It simply doesn’t traffic in morality. Morality represents the way we would like the world to work and economics represents how it actually does work.”
No. Economics is the bastard child of politics - my economics professor, Denis O’Brien, insisted that we called the subject by its full name, political economy - and can only be fully examined in its political context.
Sandel concluded that there were three main contexts in which we allocate resources: to maximise welfare; to maximise freedom, itself subdivided into those who prioritise voluntary choice and those who prioritise fairness and opportunity; and, finally, to encourage virtue and the living of good lives. There is a fourth important way, a variant on the first: negative consequentialism, in which we prioritise the avoidance of ruin.
If we consider how these ideas have been applied in practical politics; the first, utilitarian welfare maximisation, is based on the economics of perfect competition; the free-choice advocates champion a libertarian winner-takes-all economics; the fairness and opportunity lobby favours a politics of rights and responsibilities; and, the encouragement of virtue is based in personal and communal development. There appears to be no well-developed politics of ruin avoidance.
David Hume wrote: “The safety of the people is the supreme law”. In 1751, the main causes of insecurity were: conquest, war, famine and disease. We can now add to that list climate change, reduced biodiversity, pollution or despoliation, and technological threats. This indicates our true priorities for resource allocation: first, avoid ruin. Only then can we properly consider the competing claims of freedom, fairness, happiness and virtue.
Sandel said:
“The philosophies of Kant and Rawls are bold attempts to find a basis for justice and rights that is neutral with respect to competing visions of the good life. It is now time to see if their project succeeds.”
I don’t believe it does. And neither does the utilitarianism of Bentham and Mill. What’s more, they takes our attention in the wrong direction. Political philosophy took a wrong turn with the universalism of Kant and of Bentham, and their successors.
There are several sayings that indicate a better way, such as: “Think global, act local” and “If you want to change the world, start with yourself”. OK, first, we must avoid ruin (to survive), but then we need to take steps to improve, but this starts much closer to home, with self, family, friends and local community. This requires a philosophy based more on virtue than on utility or rights and responsibilities. The biggest challenges to virtue ethics are: there are different definitions of virtue and it is not clear how to decide between them; it relies on mutual goodwill; and, it doesn’t scale very well beyond a few hundred people. A community can replicate what it has seen working well somewhere else but if it tries to extend the original community, it risks damaging its fabric. That said, community solutions to community problems are almost always to be preferred if they can be resolved at that scale.
Rules may arise bottom-up, in which case they should be negotiated where possible and agreed within the community. Where they are made at scale e.g. nationally and between nations, or due to capability e.g. where young children are concerned, they should be delegated to, or in some cases, assumed by, parents or leaders. Negative rules, based on judgements of ruinous consequences may be essential. The general rules should be: to minimise the number of rules; and, to paraphrase Einstein, for the rules to be as simple as possible, but not more so.
Utility, in its use by economists and philosophers, is a guide to improvement but only after the needs of planet and people have been assured.
In conclusion, philosophy finds value in the things we need for survival and improvement, not only now but in the longer-term. We not only want to survive and thrive ourselves; we want out children and their children to live meaningful lives. And our survival is predicated on the survival of our ecosystems. In addition to their value in their own terms, they have direct value to humanity. The most important tool for survival is to avoid ruin. We evolved to live in small groups and have developed ways to live in much larger groups. Greater scale has demanded changes in the ways in which we feed ourselves and survive more generally. The methods that worked well for small-scale communal living are difficult to scale so we devised rule-based methods to live in and trade with larger groups. These latter methods are abstract and, despite being tremendously successful in accommodating more and more humans on the earth, they have within them the seeds of our destruction unless we apply some super-rationality to them. Typically, they reveal short-term benefits and hide long-term harms. Some of each are consequential. It is the task of the current generation to identify the most harmful and eliminate the ruinous. And where they do no significant harm to one another, we should leave communities alone in their quiet enjoyment.