Economy and Morality: The Philosophy of the Welfare State

Economy and Morality

Economy and Morality The Philosophy of the Welfare State

Yuichi Shionoya Hitotsubashi University, Japan

Edward Elgar Cheltenham, UK • Northampton, MA, USA

© Yuichi Shionoya, 2005 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical or photocopying, recording, or otherwise without the prior permission of the publisher. Published by Edward Elgar Publishing Limited Glensanda House Montpellier Parade Cheltenham Glos GL50 1UA UK Edward Elgar Publishing, Inc. 136 West Street Suite 202 Northampton Massachusetts 01060 USA

A catalogue record for this book is available from the British Library

ISBN 1 85898 480 7 Printed and bound in Great Britain by MPG Books Ltd, Bodmin, Cornwall

Contents List of figures and tables Preface

vii ix

Introduction: two banks of the river – a metaphor PART I

1

VALUES

1

Economy and morality: a conceptual framework 1.1 The relationship between the economy and morality 1.2 Three ethical approaches: good, right, and virtue 1.3 The nature of moral values 1.4 The interest of social coexistence 1.5 The nature of economic values 1.6 Two schemes of social integration

13 13 17 23 26 33 36

2

Efficiency and justice 2.1 A critique of welfarism 2.2 Aspects of individuals 2.3 The social contract and the principles of justice 2.4 Rawls’s turn to political philosophy 2.5 Institutional implications of the principles of justice 2.6 What is moral equality?

49 49 56 61 65 70 76

3

Liberty and excellence 3.1 The philosophical foundations of liberty 3.2 Persons and ownership 3.3 Persons and community 3.4 The ethics of virtue 3.5 Capability and excellence 3.6 Ideas of perfectionism

PART II 4

81 81 88 94 107 115 118

INSTITUTIONS

The ethics of capitalism 4.1 Systems of information, incentives, and ownership 4.2 Competition as a metaphor of games v

133 133 148

vi

Contents

4.3 4.4 4.5 4.6

Record-type games: the ethics of excellence Struggle-type games: the ethics of justice Cooperation-type games: the ethics of trust Two models of capitalism

157 160 163 171

5

The ethics of democracy 5.1 The private sphere and the public sphere 5.2 Union and disunion between capitalism and democracy 5.3 The logical dimension and value plurality 5.4 The functional dimension and the competitive system 5.5 The normative dimension and public reason 5.6 The possibility of deliberative democracy

178 178 183 190 194 201 207

6

The ethics of social security 6.1 The moral basis of social security 6.2 The interrelationship between values and institutions 6.3 Four theories of moral philosophy and the welfare state 6.4 Family, gender, and the ethics of care 6.5 Citizenship and the ethics of duty 6.6 Cultural values of well-being

213 213 228 231 248 259 264

7

The economy and the morality of social security reform 7.1 What is the crisis of the welfare state? 7.2 The essence of low fertility and the ageing population 7.3 The market: individual versus social responsibility 7.4 The family: intergenerational versus intragenerational justice 7.5 The state: insurance versus assistance 7.6 Positive social security

271 271 273 279 292 308 315

Conclusions: in pursuit of a just and excellent society

321

References Index

328 347

Figures and tables FIGURES 0.1 1.1 1.2 1.3 1.4 2.1 3.1 5.1 5.2 5.3 5.4 6.1 6.2 6.3 7.1 7.2 7.3

The three-dimensional interrelationship between values and institutions The economy and morality in historical perspective Pareto’s triangle Framing the issues The two worlds of the economy and morality Rawls’s theory of justice Integration of the economic and moral worlds Action–information loop Public/private and institution/individual loops Reasonable pluralism Equivalence of the trinity in moral and political philosophy The moral structure of social security The three-dimensional interrelationship between values and institutions Society in stock concepts Market versus the state; incentives versus norms Comparison of the three conceptions of generation Risk matrix

9 15 32 40 41 64 129 181 182 193 203 226 265 268 291 295 317

TABLES 0.1 1.1 1.2 1.3 3.1 3.2 3.3 3.4 4.1

The interrelationship between values and institutions A system of ethics Juxtaposition of economics and ethics Contemporary moral philosophy Liberalism and democracy Two controversies in economics and ethics Gemeinschaft and Gesellschaft Sen’s ethical framework Three types of games, social relations, and organizations vii

8 21 45 46 86 99 102 116 157

viii

Figures and tables

4.2

The market society, social union, and organization and community Two types of capitalism: American and Japanese An analysis of two capitalisms The marketization and socialization of female work by regime Institutions and their ethical implications Intertemporal resource allocation Social insurance versus social assistance: the prevailing view

4.3 4.4 6.1 6.2 7.1 7.2

167 173 176 253 263 305 310

Preface This book, which will construct a relationship between the economy and morality, is intended to provide a systematic approach to economic ethics. It considers two fundamental questions: (1) whether the economy is justified by morality and (2) whether morality, in turn, is supported by the economy. Since under the rule of modernism in academe, economics and ethics are conceived as two virtual, unrelated worlds, these questions require careful consideration lest they threaten the foundations of the two disciplines. I explore this problem along two dimensions: values and institutions. This approach will permit an analysis of the nature of economic ethics, which differs from general ethics in that it also deals with the real processes of the economy. Although there have been numerous attempts to address the relationship between the economy and morality, many (except for some excellent work in economic philosophy) are no more than emotional statements criticizing the unethical nature of the economy (and economics) or moralistic rationales for integrating altruism and self-interest. Since I believe that the economy cannot work without morality nor morality without the economy, it is necessary to grasp the close relationship between the economy and morality by returning to the foundations of economic and moral knowledge. Both economics and ethics are the superior disciplines that have pursued different subjects by different methods after a long history of moral science in which the two were united. It would be naïve if not irresponsible to suggest a sort of outright antithesis or synthesis between the economy and morality. The approach used here is twofold. First, I seek a connection between the economy and morality on the dimension of values by reconstructing a coherent system of ethics that coordinates the ‘right, good, and virtue.’ In other words, I am trying to find those hidden philosophical roots that the grand trees of economics and ethics, so to speak, have developed under the ground. The result will be an economic philosophy constructed from an examination of the principles of contemporary ethical theory. I believe that this paradigm of economic philosophy will be acceptable to both economics and ethics. Second, based on this system of economic philosophy, I build a connection between the economy and morality on the dimension of institutions and present the philosophy of the welfare state. It is necessary to ix

x

Preface

introduce politics into this discussion, because on the institutional level the coordination of the economy and morality should not be left to the formation of practices through a spontaneous process alone but be mediated by the deliberate action of politics. Thus my conception of the welfare state is that of a tripartite public institution composed of capitalism, democracy, and social security. The coordination of values and institutions with regard to the economy, politics, and society is both a theoretical and a practical challenge to contemporary social scientists. The reconstruction of the welfare state has been placed on the agenda of practical politics in developed countries, but this cannot be achieved by a makeshift social policy. Reform of the welfare state should be worked out as the reconstruction of capitalism, democracy, and social security as a whole by a good command of ethical theory and all functions of public institutions. The disciplines of social science in the appropriate combination should provide the basic direction for reform. On the dimension of values, the book considers two key philosophical issues: efficiency versus justice and liberty versus excellence. Resolving the double antithesis of values will virtually constitute a connection between the economy and morality in terms of values; it will also provide the direction for reconstructing the economic, political, and social structure of the welfare state in terms of institutions. In the discussion of liberty versus excellence, I present an argument that is apparently unfamiliar to contemporary economic thinking, because it emphasizes the importance of the ontological concept of being (or existence) in addition to the concepts of behavior (or act) and institution (or rule). Economists can understand that the ‘good’ regulates ‘act’ and the ‘right’ determines ‘rule,’ but there is no thought in economics that ‘virtue’ drives the ‘existence’ of human beings. It seems to me, however, that this idea was the starting point of economics. The Cambridge economist Alfred Marshall, who had high aspirations to contribute to the well-being of humankind, had once studied ethics. According to the memoir by John Maynard Keynes ([1924] 1972, pp. 200–201), Marshall, about the time he resolved to shift from ethics to economics, bought a small oil painting of a worn-out, grieving destitute person and called the man his patron saint. Looking at the portrait every day, he feared that his work in economics would degenerate into a theoretical exercise. He regarded the improvement of man’s abilities as the ultimate goal of future society. Arthur Cecil Pigou, one of Marshall’s disciples and the father of welfare economics, explained that economics began with ‘the social enthusiasm which revolts from the sordidness of mean streets and the joylessness of withered lives’ ([1920] 1932, p. 5). Both men regarded the starting point of economics as the perception of human ‘misery’ rather than sophisticated notions of ‘efficiency’

Preface

xi

and ‘justice.’ This idea was not confined to the British tradition of economics. At his inaugural lecture at the University of Freiburg, Max Weber, the disciple of the German Historical School, had reminded us of the ultimate concern of economics as the ‘quality of the human beings’ rather than economic efficiency and social justice (Weber [1895] 1994, p. 15). However, because economists long lacked the academic concepts of virtue, excellence, and being, the ideas of thoughtful scholars remained mere prose and were buried between the lines in economic works. I argue that the goals of the welfare state are first to relieve men and women from misery and then to raise them to excellence. Efficiency and justice, both familiar value concepts to economists, might be regarded as an auxiliary means to human excellence and flourishing. The reason for this is as follows. The point of the controversy surrounding efficiency versus justice is well known in economics. But the claim of justice alone over efficiency does not indicate a desirable state of an economy. Although justice is a strong ethical position, it only prescribes the allocation of rights. It is the function of excellence as a moral standard to evaluate the quality of an economy and the living conditions of human beings and to indicate the ultimate direction of society to which efficiency and justice are to be applied. Various romantic claims of quality of life and human flourishing must be justified by a normative theory of excellence. Thus justice and excellence impose effective constraints on the principles of economic freedom and market efficiency. The metaphor of ‘two banks of the river’ in the following introduction is based on this idea. To study social science, knowledge of four areas, philosophy, politics, economics, and sociology (PPES) is required. This book is an attempt at such interdisciplinary research, and I hope that it will stimulate discussion among these disciplines to construct a paradigm of PPES through an inquiry into contemporary issues of the welfare state. It was my good fortune to have as my copyeditor Mrs Stevie G. Champion, who did an excellent job of editing the English translation of my book on Joseph Alois Schumpeter, Schumpeter and the Idea of Social Science (Cambridge University Press, 1997); I am grateful to her for patiently assisting me again.

Introduction: two banks of the river – a metaphor The economy is embedded in society, and how it is embedded determines its nature. The economic philosophy I advocate can be depicted metaphorically. Let us suppose that the economy is a river and the two main constraints of that economy are the two banks of the river. A river is controlled and conserved by two banks. In our image, one bank of the river constitutes institutional conditions representing the foundation of an economic system, and the opposite bank consists of a society’s cultural achievements that extend beyond economic activity. The two riverbanks may be identified simply as ‘institution’ and ‘culture’ respectively, and the solid stratum underlying the two banks and the river may be represented by ‘value.’ It is the task of economic philosophy to investigate the three social categories (that is, institution, culture, and value) in which the economy is embedded, beyond an enquiry of the economic mechanism that is empirically concerned with the flow of the river, so to speak.

WHAT UNDERLIES THE ECONOMY? As illustrated by Mesopotamia between the Tigris and the Euphrates, Egypt along the Nile, and China along the Yellow River, the inhabitants of the birthplace of the ancient civilization benefited from the rivers in having fertile land, in forming settlements, and in widening transport and trade. Furthermore, the rivers supported the richness of animal and plant life. In such communities, irrigation and flood control were always the major tasks of rulers. Just as it is necessary to control, utilize, and conserve rivers by constructing banks, so is it essential to make arrangements for controlling an economy, which is liable to overflow and cause damage despite its potential benefits to humankind. Generally speaking, economic activity means the allocation of resources to provide goods and services to satisfy human desires. A primitive life in ancient times did not differ from a technologically developed life in modern times with respect to the formal structure of such resource allocation. The first economic principle is always ‘efficiency,’ which means rationality in 1

2

Economy and morality

the choice of behavior that will maximize consumer satisfaction within resource and technological constraints. Efficiency, a key word in economics, means prudence to use the terminology of moral philosophy. Both efficiency and prudence belong to an adaptive type of human behavior, one that can accommodate a society’s various constraints. To realize an efficient economy, the society needs institutional arrangements that promote and maintain fair competition among economic agents. In the long history of humankind, it has not been more than two and a half centuries since human beings freed themselves from economic constraints by introducing innovations in the form of new commodities, new technology and new institutions. This is the phenomenon of modern economic growth that surfaced after the Industrial Revolution, from which emerged the new principle of ‘growth through innovation’ in contrast to ‘efficiency through adaptation.’ Economic growth was made possible by the institutions of capitalism that work to encourage abstinence from current desires in favor of future desires and to transform the saved surplus into capital accumulation. Capitalism is an economic system that carries out a capitalistic mode of production motivated by secular abstinence and profit maximization under private ownership and market mechanisms. Social security is another basic institution characteristic of the contemporary economy. It is the means by which the government allocates resources in order to correct various kinds of unfairness and injustice in a capitalist market economy; the government provides social services such as health care, pensions, and welfare based on a certain definition of basic human needs. The leading construct of social security is ‘justice,’ however defined, which is often regarded as the countervailing value of ‘efficiency’ and ‘growth.’ The behavior intended to implement the idea of justice is social solidarity based on citizens’ participation in public decision-making, in contrast to behaviour based on private decision-making in market exchange. Thus we have the third organizing principle of a society: ‘justice through solidarity.’ If a capitalist system is involved with the intertemporal allocation of private desires, a social security system is concerned with the interpersonal allocation of private desires; it assumes the principles of communities such as families and local associations that historically preceded the market economy. The question ‘What underlies an economic system?’ relates to the identification of institutions that lay the foundation for an economic system. Although the foremost values of an economic society have been developed historically in a sequence of ‘efficiency through adaptation,’ ‘growth through innovation,’ and ‘justice through solidarity,’ the basic philosophical task is to examine the internal consistency of these three principles that

Introduction

3

emerged historically. Moreover, although the social security system in a contemporary welfare state was maintained primarily by virtue of rapid economic growth and a young population structure during the several decades after World War II, it is now subjected to the criticism that its management contradicts economic efficiency and hinders economic growth; it is also confronted with a financial crisis in meeting the increasing demand for social services during a period of stagnant economic growth and ageing of population.

WHAT EXISTS BEYOND THE ECONOMY? Problems, however, are not limited to the plausibility and sustainability of the welfare state. We must raise a further question, ‘What do people want to achieve through economic activity?’ In other words, what is the ultimate goal of an economy? Humankind in the past, although at a lower standard of living than we presently enjoy, sometimes developed remarkable spiritual and material cultures and contributed to the accumulation of a valuable human legacy. Having attained an unprecedented economic abundance, what should we do for the future? Unfortunately, humankind has continued to repeat its history of insanity and devastation. In particular, the twentieth century was characterized by a series of wars on a worldwide scale employing high-technology destruction. Whereas the world of the economy and commerce presupposes peace and prudence as a model of man and society, political attempts to attain world hegemony evoke dangerous emotions that caused nations to deviate from their framework of peace and prudence in order to eliminate economic constraints at one fell swoop. In the last century these attempts repressed individual liberties and resulted in the dominance of a detested totalitarian ideology. The minimum significance of democracy is to be found in refuting the ideology of madness, destruction, and oppression by citizens’ participation in the governance of their society. The term ‘welfare state,’ coined in contrast with the ‘warfare state’ during World War II, refers to an institution of social security that mitigates the harshness of a market economy, on the one hand, and demands close cooperation with democracy as the civic foundation of welfare, on the other. The welfare state thus thrives for solidarity and security and peace and prudence by controlling market power and political power, both of which are liable to be out of control. Given this relationship, the contemporary economic, political, and social system consists of ‘capitalism, democracy, and social security,’ the totality of which I call the welfare state.

4

Economy and morality

Then, our question about the goal of economic activity now reads: ‘What values does the welfare state intend to realize using this apparatus?’ Suppose that a rich and secure society whose inhabitants enjoy longevity is achieved through the welfare state. In what sense are we proud of it? The values of efficiency, growth, and justice will have no meaning unless they are combined with far-reaching ideals and virtuous lives. It is incumbent on us to pay attention to the concept of being and to examine the relationship between individual liberty and social institutions from the viewpoint of promoting a flourishing of population. There is no question that only when a free market system, which permits the pursuit of private desires, is supplemented by a secure system of justice and a democratic system of political equality, will individual autonomy be substantially guaranteed and an opportunity to develop individual capabilities afforded. In economic theory, individual liberty as the presupposition of market activity is merely a means to maximize satisfaction of given preferences. True individual liberty offers two more things. First, autonomous individuals are free critically to examine individual preferences, to cultivate skills, to achieve a standard of excellence, and to transform themselves positively and rationally in various fields of social practice. Second, they can participate directly or indirectly in the formation of public policy and its institutional framework, and contribute to public decisionmaking through the understanding and discussion of civic issues. While the former is concerned with the private sphere and the latter with the public sphere, both will change the status quo in the private and public spheres. In short, under the tripartite institutional apparatus of guaranteeing market liberty, social justice, and political equality true individual liberty helps people to accomplish what is beyond these values if and only if they act to transform themselves and society. Thus liberty becomes a bridge between the two banks of an economy. For this purpose, the liberty of choice, of exchange, and of competition in the system of markets is not enough, nor is liberty based on justice and equality in the systems of social security and political democracy. What are required of individuals are the pursuit of voluntariness and pluralism, the cultivation of moral faculties, the promotion of public spirit, the effort to gain self-realization, the exertion of creativity, and the elevation of human dignity. From true individual liberty emerge outstanding achievements in science, the arts, thought, culture, lifestyles, and identity. Although these endeavors need economic resources, they are beyond economic valuation and are conceived as the ultimate human ends of economic activity. If these values can be called perfection or excellence, we have the fourth normative principle: ‘excellence through liberty.’ This ideal is interpreted as the ‘cultural value’ that holds true in all areas of social activity.

Introduction

5

COORDINATION OF VALUES BY THE WELFARE STATE I argue that excellence is the goal of a society after it has achieved economic affluence and social justice. The ethics of excellence has been a distinctive position of moral philosophy since Aristotle; it emphasizes virtue over happiness and justice. Reconstruction of the welfare state does not result from economic and technical considerations alone. Its three components – capitalism, democracy, and social security – comprise the apparatus set up on this side of the river, and should be oriented to the opposite bank. The relationship between the set of values and the set of institutions can be summarized as follows. First, the market mechanism of capitalism prepares the economic foundation for a free society on the basis of economic principles, that is, ‘efficiency through adaptation’ and ‘growth through innovation.’ Second, social security corrects and complements the market system and is based on the ethical principle of ‘justice through solidarity.’ Third, democracy as a political system aims to control the economy and society by means of the equal participation of citizens in order to achieve self-governance of the public sphere. Seen from a different angle, democracy is a political process that is indispensable to the construction of a just ethical system within the economy and society. The three components of the welfare state on this side of the river are expected to contribute to the ultimate goal on the other side of the river through the guidance of the ethical principle, ‘excellence through liberty.’ Socialist and communist regimes, although they once seized the minds of people using the ideology of justice, were unable to produce an economic system amenable to efficiency and growth, because they rejected market institutions, believing that the human nature of self-interest could be abandoned. No economic system is sustainable without efficiency and growth. Moreover, these regimes denied individual liberty and established a dictatorship involving horrendous political struggles; eventually they collapsed. Whatever the economic performance of a society may be, it is impossible for a society without liberty to consider the prospects for the ultimate human goal. This is not an old story. Excessive economic and social regulation in capitalist countries involves the same danger as in socialist countries with regard to control of the private sector by the government. It is reasonable that the worldwide trend of deregulation and privatization should promote a shift from the government to the private sector. Just for this reason, however, the more persistent and pervasive this trend is, the more effective management of social security and democracy is needed as a bulwark

Economy and morality: a conceptual framework

25

principles deduced from moral hypotheses are consistent with the moral sense or moral judgments of people. Interdependent adjustment within the framework of ‘moral hypotheses–moral principles–moral judgments’ is the idea of ‘reflective equilibrium’ for the justification of moral principles, which will be discussed with reference to Rawls’s theory of justice in Chapter 2, section 2.3. To summarize, a moral value differs from other values in that it is the universalizable and ultimate criterion for judgment. This formal requirement is called the universalizability and ultimate normativity of morality. It can be compared to what Richard Hare termed the universalizability and prescriptivity of moral judgments (Hare 1963, p. 4). Since the concept of prescriptivity includes, in Kantian terms, both hypothetical and categorical imperatives, or both technical and moral judgments, it seems desirable to substitute the ultimate normativity or ultimate prescriptivity for mere prescriptivity in order to exclude hypothetical judgments from morality. Universalizability of morality contradicts the plurality of morality. There are two ways to resolve this contradiction. The first is to recognize transitional conflicts among moral theories, while maintaining the universal validity of moral values as a genetic concept. There is room for reducing conflicts by sorting out value languages, objects, and criteria of valuation, and by specifying the valid scope of conflicting theories. I take this position. The second course is to acknowledge moral plurality as a normal state of affairs and to reject the status of ultimate normativity in ethics. But since a society cannot exist without social norms, the second course looks for this role not in morality but in laws and customs. Because among the institutional components ‘laws, morality, and customs,’ laws and customs are historically and empirically given, they are used as the inductive foundations of desirable institutions within the framework of reflective equilibrium. This is the position that Rawls turned to in Political Liberalism (1993) after withdrawing his A Theory of Justice (1971). I believe Rawls’s shift from morality to politics represents a deterioration of moral theory. First, even if he now tries to find the norms that govern a democratic political process, he cannot help formulating them by moral principles; second, if this line of argument is followed, one is forced to retreat again from politics when there are conflicts and to look for norms in mere social customs. This method of resolving moral plurality will mean a withdrawal from normative theory to sociology and anthropology, and the development of something like the analysis of old institutionalists such as Thorstein Veblen and John Commons. (Rawls’s change of view is discussed in Chapter 2, section 2.4.)

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introduced in his discussion of typology. The meaning of these concepts can be better understood in the following way. In international comparisons of the welfare state, a primitive approach would be to measure the proportion of the gross domestic product (GDP) devoted to social security spending. But this method would only show the input of social security activity. To grasp the whole picture, it would be necessary to understand the nature of policy instruments and the redistributional and other outcomes. Thus, what characterizes the welfare state is the structure of the ‘expenditure, instruments, and outcomes’ of social security (Castle and Mitchell 1992). The concepts of de-commodification and social stratification correspond to the instruments and outcomes respectively. Third, with regard to family challenges, which Esping-Andersen’s typology did not fully develop, the traditional welfare state lacks the viewpoint of gender, because different pictures of the welfare state will appear depending on how women are treated in the relationship between ‘families, markets, and the state.’ The viewpoint of gender is important not only for evaluating the typology of the welfare regime, but also for examining the operation of the welfare state and formulating the ethics of social security. This is the place where welfare state scholarship and feminist scholarship should meet (Daly and Rake 2003). More broadly, feminist studies are critical of past and present moral theories for their exclusion of gender relations. The family, like the market, is one of the basic social institutions and has its own norms (law, morality, and custom). Since the family system underlies the welfare state consisting of ‘capitalism, democracy, and social security,’ the ethics of family should be clarified for the ethics of the welfare state to be understood in its fullest sense. This means that the ethics of cooperation and trust, considered as a metaphor of games in Chapter 4, and the ethics of virtues, argued with reference to communitarianism in Chapter 3, would be developed in the context of family and gender in the welfare state. Family, Gender, and Feminism The family is a unit of social composition created by the marriage or cohabitation of a man and a woman who ordinarily produce and rear children. The social purpose or function of a family is therefore the reproduction of society through the reproduction of human beings. This is not conscious behavior; in reality, various other pressures such as custom, sexual desire, and love lead to marriage. No doubt something similar to the relationship between the social purpose of markets and individual self-interest, and between the social purpose of democracy and the power game, takes place

The ethics of social security

251

in families. The relationship between society and individuals regarding the function of family may be harmonious as well as contradictory. The family is conditioned by institutions (law, morality, and custom) that may have been framed more or less to achieve the social purposes of family in harmony with individual incentives. For instance, the traditional institutions include gender distinction as well as patriarchy, monogamy, primogeniture, fidelity, piety, and the like: while man is a breadwinner, woman is a housekeeper, playing the role of unpaid provider of care in the household (housework, child rearing, elderly care, and so on). When a woman renders these services exclusively, she must depend on her male partner economically. When a man earns an income in the labor market exclusively, he must depend on his female partner for care in the household unless he remains single. In this division of labor, care and dependency are related through a special relationship such as marriage or parentage. But unmarketable female labor is evaluated lower than marketable male labor from an economic and social point of view, and its opportunity cost is kept low. It is said that whereas sex is a biological difference, gender is a socially constructed difference. At the very least it is agreed that a feminist is someone who holds that women suffer discrimination because of their sex, that they have specific needs that remain negated or unsatisfied, and that the satisfaction of these needs would require a radical change in the social, economic, and political order (Delmar [1986] 2001, p. 5). If, as shown at the outset of this chapter, the welfare state is an attempt to achieve citizenship through the establishment of institutional rights in three stages, namely civil, political, and social rights, then the introduction of the feminist viewpoint into the welfare state scholarship will demand a revaluation of the traditional notion of citizenship so that women can enjoy all of these rights equally with men. Among the tripartite relationship ‘market, family, and the state,’ women traditionally have been confined to the family or household and engaged in unpaid work to care for its members. As economic development due to commercialization proceeded, the household economy as a self-sufficient production-cum-consumption unit based on agriculture disintegrated, and household work, including cooking, laundry, home schooling, child care, and elderly care, was externalized from family to market. Men were the first to enter the labor market, and other services were partly transacted in markets. Now that women also participate in the labor market, the state is asked to provide for the services formerly expected of them. The de-familization of welfare is directed both to the market and to the state. Feminists are demanding a society in which both sexes participate equally and men partially withdraw from the labor market to share household work

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with women. Hence the tripartite relationship ‘market, family, and the state’ changes. Let us now examine three major challenges of feminist scholarship. First, what new insight does the gender perspective afford the three types of welfare states? Second, what challenge does the gender viewpoint offer the view of citizenship consisting of the three-stage development toward the welfare state? And third, how is the gender perspective formulated in moral theory? The answers to these questions can be expected to enrich and deepen the ethics of social security. Gender in the Welfare State Although Esping-Andersen’s typology accepts the family as one component of the welfare regime, it almost ignores gender relations. From the perspective of gender, the three welfare regimes can be characterized as follows (Orloff 1993; O’Connor 1996). Traditionally, the economic unit of the family is based on the division of labor, with men as breadwinners and women as housekeepers. Women’s work in the household is unpaid, and their participation in the labor market is often prevented. Feminists call for increased educational opportunities for women, their increased access to paid work, equal conditions of work for both sexes, the socialization of care services, the economic independence of women, and so forth. How the responsibility of household services is divided between ‘market, family, and the state’ and between men and women determines the nature of the welfare state. From the viewpoint of the liberal welfare regime, markets as the source of welfare are considered to be more important than the family, and the participation of women in the market and the help they receive with housework are supported not by social policy but by market forces. In the conservative regime, social policy intervenes only when family resources are deficient, and the state does not positively support housework to encourage women to participate in the labor market. In the social democratic regime, the costs of unpaid household work are socialized to help women work outside the home. According to the trend toward externalization of household work from the family to markets and the state, there are two criteria for ascertaining the extent of the welfare state, namely, the degree of marketization of female work and that of its socialization by the state. Based on the results of comparative studies across countries by Alan Siaroff, Table 6.1 summarizes the score of the three regimes (Siaroff 1994). In the liberal regime, the marketization of female labor and housework is developed, but the socialization by the state remains small. In the social democratic regime,

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Table 6.1

The marketization and socialization of female work by regime

Marketization Socialization

Small

Small

Large Liberal

Conservative Large

Social democratic

both trends of externalization are better developed. In the conservative regime, the degree of marketization is small, but the degree of socialization differs by country (high in France and Belgium, low in Italy and Japan). Except for the social democratic regime, women’s access to the labor market and the socialization of unpaid household work are limited. Even in the social democratic regime, there are remarkable disparities between men and women with regard to wage level, kind of work, and opportunities for advancement. In many countries there are inequalities between sexes in political participation and access to welfare services. Esping-Andersen’s concept of de-commodification or de-marketization means the extent to which persons are independent of markets in their day-to-day lives, but it presupposes their previous marketization or participation in markets, which is ordinarily the case for men who have retired from paid work. Gender relations often prevent women from entering the labor market and learning the skills necessary to perform jobs outside the home; this leads to low wages and unstable employment for women. On the other hand, de-familization through social security is limited to single mothers and the single elderly given the implicit assumption that care is conventionally provided by women and is unpaid. Even under the welfare state, then, sexual equality has not yet been realized in either participation in the labor market or the socialization of housework, but this does not mean that all welfare states intentionally support an ideology of gender bias. These inequalities are basically the result of the gender bias that has been structurally fixed in the family system. In this sense, one may speak of the patriarchal welfare state as a system of political relations (Pateman 1988b). Gender in Citizenship The second feminist challenges goes beyond the real world of the welfare state to the theory of citizenship that underlies the welfare state. Marshall’s theory does not discuss gender; in other words, it is gender-neutral in that because it maintains that anyone holding citizenship is equal in terms of

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rights and duties, it does not need to distinguish the sexes. But obviously in reality, the gender roles imposed on women create many handicaps. Are women included in the system of citizenship consisting of ‘civil, political, and social rights’? Feminists say no. With regard to civil rights, men who participate in the labor market are treated as family representatives, whereas women are treated as dependents. Individuals who qualify for citizenship are subject to the concept of male workers as dependent breadwinners; in other words, having the status of breadwinner is the qualification for citizenship. Concerning political rights, women formally have the franchise and are eligible for elective office, but they show lower representation in the political arena. This means not only that women have a smaller voice in collective decision-making, but also that there is a public–private divide: the public sphere is for men, and the private sphere (the family sphere rather than the market sphere) is for women (Elshtain 1981). Consequently, a dual welfare policy has emerged with regard to social rights: one is a set of rights-based social insurance arrangements for men’s de-marketization on the presumption of male employment; the other is means-tested social assistance for women’s de-familization on the presumption of women’s relegation to the family (Nelson 1990). The latter leads to the feminization of poverty. A series of distinctions in social policy, such as social insurance versus social assistance, contract versus benevolence, premiums versus taxes, and universalism versus selectivism, overlaps with the gender distinction between breadwinner and dependent. Citizenship needs to be established in both the public and private spheres. If women are customarily confined to the family unit in the private sphere and actually prevented to a large degree from participating in a political process in the public sphere and in a market process in the private sphere, the formal assurance of gender-neutral citizenship would not mean that women were truly free and equal citizens. Under this circumstance, gender neutrality would be equivalent to blindness to gender. According to feminists, citizenship must be redefined. An aggressive strategy is needed to achieve fuller citizenship for women. Market versus Family Susan Okin concludes that as in the short run women should be protected and that in the long run a gender-free society should be constructed (Okin 1989). Women, however, cannot become the same as men. And herein lies the controversy surrounding the issue of equality and difference: whether both sexes should be treated equally or differently. Despite the claim that men and women are equal, the sexual distinction in reproduction is crucial.

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How far and in what shape can a gender-free society depart from the traditional view that a family is formed by a monogamous marriage between the two sexes? What kind of family is feasible beyond the conventional notion of family? Even if the burden of unpaid female work could be transferred to markets and the state to achieve the utmost de-familization, marriage, intercourse, conception, and birth within the family unit would be inevitable. In the extreme model of marketization, the system of sustained marriage would be abolished, and free sex and the provision of sperm, ovum, and womb would be left to a market contract (Pateman 1988a). Both sexes would be freed from the dominance and subjugation accompanied by marriage. Given this possibility, people would be free to choose between markets and marriage with regard to sex and reproduction. This parallels the choice between a market transaction and the organization of a firm. It is because transaction costs are relatively high in markets that, although such transactions are available, a firm as the fixed organization exists as a form of resource allocation. Within a firm, an indigenous style of technology is developed and specific human relations are created. Analogously, it is argued that marriage as a durable family system exists because transaction costs relating to sex are relatively high. Indeed, they include not only economic costs for marketization, but also difficulties and shortcomings due to market transactions at the spiritual, psychological, moral, and informational levels. Although the family has an organizational cost, child-rearing is based on love and trust between parents and children over the long term. Hence there is a high probability that the family system will survive not on the basis of markets but on the basis of affection and trust. Although it is inevitable that marriage will become more flexible in the future, perfect marketization cannot be achieved. The core of a marriage system lies not so much in the pleasure of cohabitation as in the continuation of the social structure through the raising of children (Russell 1929). This is the social purpose or function of marriage and family, and its weight goes far beyond personal feelings and motivation. It is required to establish justice within the family, while at the same time preserving its social function. Since civil and political rights in citizenship are in principle equal for both sexes, the most serious problem concerns social rights for women, who are discriminated against in both marketplace and family. For married women, it is not easy to work outside the home while caring for their families. When a trade-off exists between participating in the market and caring for the home, egalitarian feminists are in favor of outside work, whereas discriminative feminists choose to care for their families. A strategy for compromise is the central focus of social policy: the marketization of female labor on

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Institutions

equal conditions, on the one hand, and the socialization of household work, on the other, must constitute both sides of a ‘feminist strategy’ for a welfare program. Although its ultimate goal is a gender-free society, it deals with feasible tasks of the welfare state assuming a marriage system. Gender and Ethics The third topic raised by gender scholarship is the impact of the feminist viewpoint on moral theory.9 Discussions of gender initially led to the ethics of care as distinct from the ethics of justice.10 Carol Gilligan, the progenitor of a paradigm of care ethics, paid attention to women’s devotion to the household, which has been regarded as a female virtue, and explored the ethics of care as an alternative to men’s biased conception of ethics of justice (Gilligan 1982). Nel Noddings provided a theoretical perspective of that reasoning (Noddings 1984). Men regard themselves as autonomous individuals, independent of, and separated from, others; they try to coexist with others by common rules to avoid interpersonal conflict. Hence, a man’s conception of morality focuses on justice. In contrast, women consider themselves as existing interdependently with others in society and rely on others to help them advance in life. Caring is to comply with the needs of others, to act in response to the situation of others, and to take charge of the well-being of others. The ethics of care relates to specific personal ties, such as duty, commitment, responsibility, trust, love, loyalty, and so forth. As stated in Chapter 4, section 4.6, Kohlberg’s theory of moral development argues that human beings start with intuitively following the compulsory instruction of their parents, then act in accordance with the morality of association that applies to face-to-face relationships; they finally adopt universal moral principles that hold among strangers. According to this theory, the female ethics of care would be evaluated as immature because it remains in the second stage of moral development. For this reason, feminists often call for the emancipation of women from the shackles of convention that confine them to caring for the members of their households. But Gilligan, taking a radically different approach, regards Kohlberg’s moral development theory as the one-sided logic of men; she argues that female moral development can depend on a different logic. The female conception of morality is oriented toward responsibility in that women tend to accept the needs of others and take care of others, and it should be generalized into ‘a different voice’ other than rights-oriented ethics. There is certainly a difference in the moral theorizing of the ethics of justice and the ethics of care. The ethics of justice starts from the viewpoint of abstract, isolated individuals and derives universal principles based on a principled mode of reasoning, whereas the ethics of care presumes

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interpersonal relationships in particular circumstances and makes judgments based on devotion and sympathy for others, favoring a more consultative form of deliberation. Insofar as both are approaches to moral principles, they must satisfy the requirements of universalizability that in making moral judgments one should put oneself in the other person’s position, but the nature of the reversed positions is different in the two approaches. The ethics of justice is derived from the exchange of positions between ‘universal others’ or ‘strangers,’ whereas the ethics of care is based on the exchange of positions between ‘particular others’ or ‘acquaintances.’ In the debate on ‘equality and difference,’ the feminist demand for distinction and difference involves the danger of a double-edged sword, cutting two ways. The claim for distinction is liable to be combined with the physical and psychological characteristics of women and ultimately to be consigned to the old gender framework. How should the ethics of care be developed to expand female citizenship? Feminist Strategy and the Generalization of Care Ethics As can be inferred from this discussion, the challenge of care ethics versus justice ethics resembles, in method and in substance, the challenge of communitarianism versus contractarianism. The family in which care is provided customarily is a typical case of community and is ordinarily dominated by the communitarian virtues of trust, cooperation, affection, and compassion. Caring is an exertion of these virtues. The fact that a morality of care was derived from the empirical inquiries into the practice of mothering and caring is interesting in that it represents commonsense morality in virtue ethics. Comparing the ethics of care with the ethics of justice, Gilligan writes: In this conception [in the ethics of care], the moral problem arises from conflicting responsibilities rather than from competing rights and requires for its resolution a mode of thinking that is contextual and narrative rather than formal and abstract. This conception of morality as concerned with the activity of care centers moral development around the understanding of responsibility and relationships, just as the conception of morality as fairness ties moral development to the understanding of rights and rules. (Gilligan 1982, p. 19)

This is similar to the tone of communitarians such as MacIntyre. The ethics of care belongs to the ethics of virtue that is placed under the priority of right. But if it should develop a feminist strategy and contribute to the ethics of social security, it is necessary to eliminate the gender bias from the ethics of care and to attempt a generalization of its theoretical framework.

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The socialization of care services such as care of children, the elderly, and dependent persons requires two actions: (1) liberation of women from unpaid housework and (2) provision of those services by the state. In this process, the logic of liberation from family care and the logic of social commitment must be in parallel. In other words, it is necessary to extend the notion of care of the family to the care of strangers. Only as a universalized principle can the ethics of care that have forced women to carry the burden for family care be on equal terms with the ethics of justice. Although caring is a virtue subordinate to right, it undeniably involves moral feelings. Just as affection within the family does not contradict humanity, so does care within the family not contradict caring in the provision of social security. In social security, what was regarded as a phenomenon within the family has been externalized or socialized as a task of markets and the state. These changes must be accompanied by the universalization of ethics. The socialization of caring might mean a decline in the family relationship, but it also represents a process of universalizing the ethics of care within the family as a social dimension. The opinion that elderly care provided by social security contradicts the virtue of caring within the family is based on sex discrimination and a misunderstanding of the hierarchy between right and virtue. It is the ethics of justice that emancipates women from gender restraints. It is useful to refer to Erik Erikson’s argument on ‘generativity’ as a pillar of the attempt to generalize the ethics of care. Erikson, a psychoanalyst, understands human life in terms of nine stages: infancy, early childhood, play age, school age, adolescence, young adulthood, adulthood, old age, and gerotranscendence (Erikson and Erikson 1997). He maintains that a human being at each developmental stage is confronted with psychological and social crises that must be overcome. Adulthood, the longest stage of life, is dominated by a conflict between generativity and stagnation. At this stage, one acquires the capacity for intergenerational creativity and the virtue of care through work and family life. Generativity is the process of obtaining a cultural heritage from the previous generation and transmitting it to the next generation through modifications by the current generation. Caring is having a regard for the elderly and children or maintaining a dialogue with different generations, so to speak. Generativity includes not only the procreation of offspring but also the creation of new social practices. I interpret five categories of capital as the objects of intergenerational transfer, namely human capital, economic capital, natural capital, social capital, and cultural capital (discussed in section 6.6). So viewed, care is not intrinsic to women, but is a virtue in the most productive stage of life. Furthermore, it leads to a dynamic perspective of intergenerational justice, which is not included in the ethics of justice per se.

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To label the ethics of care ‘feminine’ and the ethics of justice ‘masculine’ is merely symbolic rhetoric. In terms of a theoretical structure, justice is a concept of rights on the part of those who have needs, whereas care is a concept of duties and obligations on the part of those who provide services. At a universal level, both concepts should be regarded as a pair, like demand and supply in economics. When the ethics of care is universalized and becomes a conception coordinate with justice, care will be transformed from practical housework in relation to a family unit into consideration for the weak in a universal sense. Care is then sublimated into an exchange of ‘equal respect and consideration’ among strangers, which holds not only among persons existing at a certain point in time, but also among persons of different generations at different times. As seen in Chapter 2, section 2.3, the concept that persons have a right to ‘equal respect and consideration’ is the basis of the contractarian theory of rights. But that theory does not necessarily make explicit an inverse logic that persons have a duty to accord ‘equal respect and consideration’ to others. It only offers a logical inference that persons could be in sympathy with the weak and needy by putting themselves in their shoes. Moral feeling in caring for the weak at the level of commonsense morality cannot be denied, and it is the task of moral theory to formulate that feeling at a universal level. Coordination of both receivers and senders of ‘equal respect and consideration’ will constitute the ethics of social solidarity that is crucially needed for the implementation of social security. Moreover, such coordination between different generations will provide intergenerational sustainability of social security. Section 6.3 explained from the standpoint of the contractarian rights theory that social security is based on ‘reciprocity.’ Here we can say that ‘reciprocity’ consists in the right to receive ‘equal respect and consideration’ and the duty to accord ‘equal respect and consideration.’ Even if the ethics of care were understood from a feminist perspective, it could be developed into a moral point of view to fill a gap in moral theory. Having suggested how we should take the feminist challenge seriously, we now turn to the right–duty relationship in a more general form. In this way, we will be able to define the role of virtue ethics in social security.

6.5

CITIZENSHIP AND THE ETHICS OF DUTY

From Rights to Virtues It is helpful to distinguish between two interpretations of the nature of citizenship: the first is liberal citizenship, which emphasizes rights; and the

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Values

freedom from economic constraints through technological and organizational innovation. Economic freedom has created economic versions of excellence in innovation in commodities, technology, and institutions through dynamic competition in the marketplace. But an important relationship between liberty and excellence is found beyond the economic world. Cultural, scientific, aesthetic, and community values constitute a major part of excellence. The relationship between the two value concepts, liberty and excellence, is the second case for the integration of the economy and morality. This viewpoint entails a moral evaluation of the quality of the good. Although the usual explanation of the welfare state focuses on social intervention from the standpoint of distributive justice, it is also important to look at the welfare system from the perspective of promoting human flourishing and excellence, because poverty due to the absence of education, health, and care reflects the negative side of human excellence. In short, the concepts of efficiency and liberty, leading paired concepts in economics, are not self-contained, as static economic theory assumes, but are regulated by the moral paired concepts of justice and excellence. The integration of the economy and morality must be considered not only in light of the traditional dichotomy in economics, efficiency versus justice, but also in light of the traditional dichotomy in ethics, liberty versus excellence. In particular, the latter consideration will give us a genuinely new frontier for a closer association between economics and ethics, as opposed to the traditional perspective in ethics. A Summary of Theoretical Issues As illustrated in Figure 1.3, the economic world and the moral world establish contact at the interface of the good. At this interface, a theoretical issue

GOOD

JUSTICE

Individual differences

EFFICIENCY

EXCELLENCE

Quality differences

LIBERTY

[Moral world]

Figure 1.3

Framing the issues

[Economic world]

6

Economy and morality

against markets, and the more crucial individual participation in public decision-making becomes. It follows that a shift ‘from the private to the public sphere’ is required along with a shift ‘from the government to the private sphere.’ The contemporary welfare state faces the challenge of constructing an institutional framework that embodies the values of liberty, efficiency, and growth, while keeping the value of justice in view of the tragic experience of humankind. The welfare state encounters not only a financial crisis but also a moral crisis of individual liberty given the easygoing and irresponsible supply and demand systems of social services. Moreover, democracy as public decision-making machinery has sometimes become a dead letter; politics has also become a field for pursuing self-interests, which constitutes the so-called iron triangle of Bureaucracy, Industry, and Politics. This is the crisis of political democracy. The most fundamental task of the social sciences today is to develop a comprehensive perspective in order to coordinate the foremost values mentioned above through an investigation of the practical operation of the welfare state consisting of capitalism, democracy, and social security. To put it another way, the task is to coordinate the values and institutions of contemporary human society. The objective of this book is to elucidate the norms and systems of the welfare state within the scope of the two great disciplines, economics and ethics. The world of economics is dominated by the values of ‘efficiency through adaptation’ and ‘growth through innovation,’ while the world of ethics is dominated by the values of ‘justice through solidarity’ and ‘excellence through liberty.’ Economic ethics consists of these normative ideas that should govern an economy to enhance the well-being of the citizenry based on true individual liberty. These values do not remain mere ideas, but are embodied sometimes in positive laws and sometimes in the individual consciousness and social conventions. Thus values and institutions are not independent of each other; it is reasonable to recognize their close relationship from the start. Thus we define ‘law, morality, and custom’ as the institutions as social norms, on the one hand, and define ‘capitalism, democracy, and social security’ as the institutions as social systems, on the other. This book attempts to develop a philosophy of the welfare state in the context of the interrelationship between values and institutions. In view of the two meanings of ‘institution,’ this attempt represents an enquiry into two aspects of institution (social norm and social system), the welfare state being the institution addressed. One qualification is needed here. The traditional concept of philosophy consists of three major areas: epistemology (methodology), ontology (metaphysics), and axiology (ethics). The philosophy of the welfare state, the subject matter of this book, concerns the ethics of the welfare state.

Introduction

7

THE PLAN OF THE BOOK This book is divided into two parts. Part I, on values, has three chapters. Chapter 1 defines the economy and morality and explains the conceptual framework of this book. While economics and ethics have been recognized as separate disciplines, little effort has been made to unify the worlds of the economy and morality since the independence of economics from moral philosophy. I argue that the economic world and the ethical world are two schemes of social integration with remarkable universalizing capacities and that the concept of the ‘good’ constitutes an interface of the two worlds. In both economics and ethics, the concept of the good is widely used – explicitly or implicitly; it is an inclusive notion implying utility, welfare, well-being, happiness, and the like, based on interests, wants, desires, and preferences. In ethics, the good is defined in diverse ways; how the good is defined signifies the different positions of ethical theories. In economics, by contrast, the concept of goods (in the sense of commodities) in the plural form is defined as a means to bring about the good (in the sense of goodness) as an end, however differently the latter is defined. Economics is not concerned with the content of the good at all. Even the word ‘good’ does not appear in economics; the word ‘utility’ is enough to indicate the goal of economic activity. Starting from the concept of the good as the interface of the economy and morality, I will develop the systematic framework that is used throughout this book to explore the relationship between the two worlds. Chapters 2 and 3 characterize the basic values that apply to both the economic and ethical worlds, such as efficiency, justice, liberty, and excellence. While Chapter 2 concerns the familiar antithesis between ‘efficiency and justice,’ Chapter 3 proposes a new antithesis between ‘liberty and excellence.’ Discussions of these values are based on the recent development of normative ethics after John Rawls, including utilitarianism, contractarianism, libertarianism, and communitarianism. These discussions, which describe various controversies, are concerned with the basic structure of society from a normative point of view; contemporary economic, political, and social issues cannot be dealt with apart from these discussions on a theoretical level. As a result of academic specialization, however, serious philosophical thinking has scarcely been undertaken in economics, even with regard to the ethical basis of the welfare state. Part II, on institutions, investigates the ethical principles that are embodied in contemporary institutions with a focus on interrelated institutional structures. I define the contemporary welfare state as a compilation of ‘capitalism, democracy, and social security,’ in contrast to current usage, which narrowly identified the term ‘welfare state’ with social security.

8

Table 0.1

Economy and morality

The interrelationship between values and institutions Value

Institution

Efficiency

Justice

Excellence

Capitalism Democracy Social security

Chapters 4, 5, and 6 respectively consider the three components of the welfare state thus defined. The relationship between Part I and Part II is depicted in Table 0.1. The horizontal axis of the image gives three representations of value (that is, efficiency, justice, and excellence); the vertical axis shows the three institutions comprising the contemporary welfare state (that is, capitalism, democracy, and social security). This image will be completed to ascertain the relationship between values and institutions. Not only is each institution linked to values, but also the interrelationship between institutions is examined in terms of the overall coordination of values and institutions. There are two practical complications, however. First, since there are different schools of thought in moral and political philosophy (such as utilitarianism, contractarianism, libertarianism, and communitarianism), entries added to the image will differ accordingly. Ordinarily, a school of thought will construct a system that emphasizes specific concepts of value and advocates particular programs as a way of coordinating institutions. Therefore, different schools will add different entries to the image. Second, as international comparative studies of the welfare state indicate, different countries show different patterns of the welfare regime as a result of different ideologies and different institutional arrangements. Although countries do not necessarily hold consistent values and change them as a political office changes, it is possible to identify some correlations between values and institutions on the basis of empirical studies (for example, liberal welfare regime, social-democratic welfare regime, and conservative welfare regime à la Esping-Andersen, 1990). This is the typology of welfare state regimes. To sum up, the framework for understanding the interrelationship between values and institutions is shown in Figure 0.1. A plane, consisting of an X axis (value) and a Z axis (institution), is the same as given in Table 0.1. Now, another axis Y is introduced to represent the problems of schools of thought and regimes; there are two alternative interpretations of the Y axis. On the plane composed of axes Y and X, we can see how different schools of thought or different welfare regimes accommodate

9

Introduction

(regime) Y (school)

Z (institution)

X (value)

Figure 0.1 The three-dimensional interrelationship between values and institutions values (that is, efficiency, justice, and excellence). On the plane with axes Y and Z, we can see how they coordinate institutional elements (that is, capitalism, democracy, and social security). Finally, Chapter 7 provides insights on welfare reform. With regard to the specific areas of social security, including health care, pensions, welfare, and so forth, the need for their reconstruction in developed countries is imminent. But in view of the conflicting vested interests within a society, it is doubtful that political discussions starting from actual institutional conditions will be reasonable. Insofar as social institutions in general and the social security system in particular embody ethical values, the desirable reform of social security must be based on a comprehensive examination of the leading ethical values and the dominant institutional framework. The Conclusions following Chapter 7 form a counterpart to the Introduction and give a summary of the book. The Introduction raises questions about how an economy should be constructed using the metaphorical two banks of a river. The Conclusions call for the pursuit of a just and excellent society.

PART I

Values

1.

Economy and morality: a conceptual framework

1.1

THE RELATIONSHIP BETWEEN THE ECONOMY AND MORALITY

Moral Science and Economics Throughout the seventeenth and eighteenth centuries it was recognized that the economic process was inseparable from societal ethics and norms. In other words, economics was part of moral science or moral philosophy. This is because, to establish the knowledge base of a society, the society must have order and regularity, and philosophers had long offered visions of an orderly world based on divine providence. Ethics was indispensable to the construction of a normative picture of the world, and economic activity was oriented to and understood within this framework. With the rise of economics as a science at the end of the eighteenth century came the recognition that the economic mechanism had gained independence from society’s ethical norms. Through experience and observation it was realized that an economy had its own order outside the religious context. Is was separated and considered apart from ought. Until now, this has remained the view of mainstream economics. Occasionally, when a person like Keynes remarked that economics was a moral science, it attracted a good bit of attention.1 Indeed, it is permissible for science to analyze a complex object and to construct a hypothetical model for an artificially isolated world. Theoretically, then, economics and ethics occupy separate virtual worlds. In real life, however, it is clear that an economic system and ethical norms must be combined in some way if there is to be a society. A significant challenge today is how to integrate economics and ethics, which have been separated in academia, and how to determine and reconstruct a balance between them. Our first theoretical problem is to rediscover the points that connect the economy and morality and to define them in a new way. This is the task of Chapter 1.

13

14

Values

Ethical Criticism of the Economy On the relationship between the economy and morality, the dominant tendency has long been to inquire into the ethical nature (or, more precisely, the unethical nature) of economic activities in the market. The New Testament says: ‘It is easier for a camel to go through the eye of a needle, than for a rich man to enter into the kingdom of God’ (Matthew 19:24). It might be argued that the history of economic activity has been the confrontation with such universal anti-economism through ideological and economic arguments. Bernard Mandeville’s satire of ‘private vices, public benefits’ ([1714] 1924) and Adam Smith’s claim of the ‘invisible hand’ ([1776] 1925) expelled the old morality from the economic domain and contributed to the formation of a new morality that would support the growth of capitalism. The pursuit of private interests and luxuries traditionally regarded as vices, far from producing confusion and corruption, brought vitality, prosperity, and order to society. Humankind, however, has not entirely released economic activity from moral reproach, because rapid industrialization has exacerbated existing inequalities, poverty, unemployment, exploitation, alienation, and mammonism. Moreover, as the alliance between the state and industry has become increasingly complex, a cozy relationship has developed between the seat of power and big business, escalating public denunciation of bribery and scandal. Despite the fact that economics has managed to rid itself of moral philosophy, criticism of the economic domain has never ceased. Economic Criticism of Morality Nevertheless, conventional faultfinding is likely to overlook the real problems of today’s advanced countries. Traditional moral criticism of the economy has caused such excessive governmental intervention in the market that the welfare state, social policy, and democracy are now on the verge of crisis for economic as well as moral reasons. This, in turn, has given rise to an inverse critique of morality from an economic perspective. Ethical criticism of the symbiosis of political power and economic interest stemmed originally from state regulation of the economy. The collapse of communism was due as much to its rejection of economic logic as to its inherent moral failure. The modern capitalist system is no longer a pure market economy based on self-interest. As Karl Polanyi maintained, the self-regulating economic system oriented to and controlled by the market alone had been destroyed by society’s defense of morality by the early twentieth century (Polanyi [1944] 1957). Moreover, it is cited that social intervention in capitalist

15

Economy and morality: a conceptual framework

countries by the welfare state has restricted free play of the market to the extent that economic growth is liable to be blocked by the burden of welfare costs, the loss of labor incentives, and the spread of moral hazard. Already in the 1940s Joseph Schumpeter warned against the waning vitality of the capitalist economy due to the introduction of various social policies that he labeled ‘big-business capitalism in fetters’ (Schumpeter [1942] 1950, p. 201) or ‘capitalism in the oxygen tent’ (Schumpeter 1943, p. 123). The Bilateral and Historical Relationship between the Economy and Morality We must take into account the bilateral interactions, both positive and negative, of the economy and morality developed over time. On the one hand, in the modern welfare state (and before it the preindustrial world), morality has inhibited a free economy by imposing restrictions and prohibitions. In contrast to these negative influences, the morality of liberty and justice and of abstinence and work in a period of rising capitalism has contributed to the dynamics and stability of the industrial economy. On the other hand, modern economic performance has replaced the old morality by providing society with a spontaneous social order. At the same time, an economy that relates to both the market and the government sometimes supports ideologies of regulation and even of deregulation. The historical interactions between the economy and morality suggest that these relationships have been teetering like a seesaw. The up-and-down relationship between the economy and morality is illustrated in Figure 1.1. The rise and fall of the broken and solid lines indicate the changing relative status of the economy and morality. After economic activity was severely restricted by morality in the ancient and medieval periods, the laissez-faire capitalist economy destroyed the old morality and established a new one on its own terms. The latter half of the nineteenth century and almost all of the twentieth century saw a surge of

Morality

Economy (1) Moral economy

Figure 1.1

(2) Laissez-faire

(3) Planning and regulation

(4) The third way (?)

The economy and morality in historical perspective

16

Values

governmental planning and regulation to cope with the evils of unregulated capitalism. In the twenty-first century we are likely to emphasize the logic of the economy as a reaction to the failure of state interventionism. But in the light of past experience, we are compelled to find, so to speak, a third way that is biased neither to laissez-faire nor to planning. At this point I will venture to say that in the new relationship the economy and morality will be internally connected in such a way that the moral imperatives will play a key role in regulating the economy but will be feasible in terms of economic logic. Such coordination requires a new philosophy of the welfare state, which is developed below. The Role of Politics in the Economy–Morality Relationship A deeper problem that emerges from the relationship between the economy and morality is the relationship between the social order and knowledge. In light of the moral criticism of the economy, the idea of centralized planning and control of society by human reasoning gained strength. Moral criticism is often accompanied by the notion that man can reform the social reality in light of ideals. In fact, socialism failed because this presumption was false. On the other hand, the economic criticism of planning ideology has been based on an accusation of the conceit of reason: that is, social order cannot be established without the decentralization of decision-making, which relies on the knowledge of individuals on the spot. According to this argument, a society evolves from decentralized units by spontaneous order and should be left to the markets as much as possible. This is the polemic issue raised by Friedrich von Hayek ([1945] 1949). In view of the breakdown of planning and regulation at the end of the last century, people from all quarters have tended to return to markets and competition except for those who gain from regulation. However, we must not place too much confidence in a reactionary swing of the pendulum. Whenever a society does not work well, it is always necessary to reform its social institutions and a society cannot dispense with political rule. A political process is required to organize a society so it can coordinate the economy and morality. It is impossible to coordinate the economy and morality by idealistic exercises. Clearly a democratic political system must act as an intermediary. A desirable path between markets and planning is the design of social institutions and policy that are based on the moral sense of individuals as well as scientific knowledge. Essentially, this is the path of the ‘public reason’ entertained by individuals in the public sphere. Democracy is not always a deus ex machina. In order that democracy may control the monopoly of political power by interested parties, a society must be equipped with a mechanism of the public reason that consists of

Economy and morality: a conceptual framework

17

objective knowledge and a fair viewpoint as the prerequisite for discussing public issues. Thus, we are led from the relationship between the economy and morality to that of the economy, morality, and politics. This chapter, abstracting from historical circumstances and the political aspects of society, proposes a pure theory that will serve as a conceptual framework for examining various relationships between the economy and morality. As an initial attempt to identify the moral foundation of an economic system, it is confined to the arrangement of related concepts and issues in economics and ethics.

1.2

THREE ETHICAL APPROACHES: GOOD, RIGHT, AND VIRTUE

The Concept of the Institution Ethics or morality (I use these terms interchangeably) is a social norm that regulates the behaviour of individuals as well as the structure of society. Laws and customs are also social norms. These three concepts – morality, laws, and customs – constitute social norms in the broad sense, and we call them the ‘institution.’ This conception of the institution is consistent with that of Gustav von Schmoller, the leader of the German Historical School of Economics (Schmoller 1900–04, vol. 1, pp. 48–59). The German Historical School, with its emphasis on the historical and ethical approach, is properly regarded as the forerunner of institutional economics and economic sociology (Shionoya 2001). This conception of the institution also conforms to the view of the new institutional economics that is gaining influence in the field. According to Douglass C. North, one of the new institutionalists, ‘institutions are the humanly devised constraints that structure political, economic and social interaction. They consist of both informal constraints (sanctions, taboos, customs, traditions, and codes of conduct), and formal rules (constitutions, laws, property rights)’ (North 1991, p. 97). In this context, formal rules relate to laws and informal rules relate to customs and morality. In terms of the compulsory power of institutions, there is a difference of degree in the decreasing order of laws, morality, and customs. As a result of their compulsory power, institutions impose sanctions upon the violation of or deviation from social norms, and in this respect, too, there is a difference of degree between the three kinds of norms. Since the violation of customs is a deviation from the ordinary pattern of life, those who violate a custom merely suffer from inconvenience or disadvantage; a violation of morality leads to social censure and feelings of guilt or shame on

18

Values

the part of the violator; an infringement of the law results in a specific punishment of the offender by the state. Seen from the genetic viewpoint, both

, the Greek word for ethics, and mos, the Latin word for morality, mean manners and customs; ethics, or morality, was spontaneously established as customs in human communities. As a result of the diversification and transformation of social relationships, which have entailed a decline of conventional communities and a divergence in values, social norms have relied more and more on laws rather than on customs and morality as the effective rules of conduct. This explains why legal norms have a stronger universal authority. In addition to the conception of institutions as social norms, institutions are conceived as social systems, as we mentioned in the Introduction. While the former relates to value, the latter is an organizational entity. Social systems include business firms, markets, families, and governments; more broadly, they comprise the systems of capitalism, democracy, and social security, the total of which I call the ‘welfare state.’ The concept of institutions has two meanings because a social system possesses specific social norms. Since laws as formal rules directly stipulate the organization of systems, there is a continuity between norms and systems. One of the important issues of institutions involves the relationship between the value dimension and the organizational dimension. In addressing the philosophy of the welfare state, we are concerned about the two dimensions of the welfare state as contemporary, comprehensive institutions. Morality as the Principles of Norms As we consider the normative dimension of institutions, it is important to recognize the special status of morality. In terms of the binding power and sanctions of norms, morality is located at the midpoint between laws and customs and differs from them only in degree. In terms of the principles underlying norms, however, morality is intrinsically different from laws and customs. We pay special attention to morality, or ethics, because of these principles. When we speak of morality as distinct from customs, we are referring to moral principles that are unlike the commonsense morality embedded in customs. When we talk about morality as distinct from laws, we mean moral principles or natural laws that are different from the specific rules governing individual and institutional behavior established by the state. Among the three components of institutions as social norms, I will emphasize the principles inherent in ethics to clarify what institutions as social systems should be like. Rather than present a detailed account of institutions represented by laws, morality, and customs, I will focus on the

Economy and morality: a conceptual framework

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principles of institutional setup in normative terms. Nevertheless, how moral principles are related to moral sentiments or commonsense morality rooted in society is another important topic in ethics. This is a methodological problem concerning the coherence of moral principles as they relate to people’s moral judgments. As discussed in Chapter 3, John Rawls offered the method of reflective equilibrium as a way of justifying moral principles (Rawls 1971, p. 20). Act, Rule, and Being – Good, Right, and Virtue The science of morality is called moral philosophy or ethics. It distinguishes three objects of moral evaluation: (1) the act or behaviour of individuals, (2) the rule or institution, and (3) the being or character of individuals. Corresponding to these three objects there are three approaches to moral philosophy (that is, good, right, and virtue), each of which centers around one of the three objects and formulates a distinct moral theory. Each theory sees a specific object, at the most basic level, as bearing a strategically important ethical value. In my definition, each approach uses different basic value terms to evaluate different objects: good, right, and virtue vis-àvis act, rule, and being. Although the first and third approaches are both concerned with the evaluation of individuals, if we analogously apply the stock and flow concepts in economics to moral philosophy, the first and third approaches can be distinguished in terms of the stock and flow aspects of individuals. The third approach deals with the desirability of the nature of a human ‘being’ or an entity as ‘stock,’ whereas the first approach, with that of a human ‘doing’ or act as ‘flow’ derived from the stock. The concept of virtue is applied to evaluate the quality of a human ‘being’ or person, whereas the concept of good is applied to the nature of a human ‘doing’ or act that is flowing from the human ‘being’ as the stock. By contrast, the second approach to moral philosophy is concerned with the evaluation of social institutions or rules and applies the basic value language of right, which includes some related terms such as liberty, equality, and justice. Since a society consists of a number of people, a desirable society defined by the conception of right must be supported by some corresponding nature of individual ‘being’ and ‘doing.’ In this sense, even a social rule in the second approach presupposes distinct normative values concerning individuals, but the latter values are not necessarily the same as envisaged by the first and third approaches unless the three approaches are coordinated from a unified viewpoint. In the history of ethical thought, philosophers have developed various standards for values without much effort to put them in order, although

20

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they were often absorbed in criticism of others; in particular, the concepts of good (or bad) and right (or wrong) are most widely used in diverse ways without specification and coordination. Thus we suffer serious confusion and conflict around the language of values at the most basic level of the discipline, but the unity of conceptual usage is certainly desirable for a science of knowledge. Often in the history of ethics three types of moral philosophy are distinguished: utilitarian ethics, Kantian deontological ethics, and Aristotelian virtue ethics. How is this distinction related to my double distinction of good, right, and virtue vis-à-vis act, rule, and being? Utilitarian, Kantian, and Aristotelian ethics can be interpreted reasonably as the ethics of good, right, and virtue respectively. But each theory is so comprehensive with regard to the scope of the intended application that all objects of moral evaluation are treated by a single principle. A major reason for confusion and conflict in ethics is that a single value appropriate for part of life claims to be a comprehensive doctrine that should prevail over all objects of ethical evaluation. For instance, the utilitarian theory of act (that is, act-utilitarianism) based on the individual pursuit of good (utility) is also extended to the utilitarian theory of rule (that is, rule-utilitarianism) and the utilitarian theory of being (that is, motive-utilitarianism). Thus, in utilitarianism, those acts, rules, and dispositions that maximize the social sum of individual utility are not only good but also right and virtuous. The same applies to the other two theories. Comprehensive moral theories easily bring about conflicts and inconsistency among themselves. We need a strategy to put the right theory in the right place so that different ethical standards can be coordinated into a system of ethics: that is, good for a human act, right for institutional rule, and virtue for human existence. In other words, the applicability of the traditional three theories of morality should be localized, and certain qualifications are needed. A System of Ethics Three sets of combinations, ‘act–good,’ ‘rule–right,’ and ‘being–virtue,’ indicate the correspondence with objects and values in the three approaches. But the value categories in these sets are very abstract, and an effective discussion in ethical theory needs more languages. In fact, a variety of value languages is used in the practice of ethical discourse, and this pluralism also demands systematization and coordination of terminology. First, it is necessary to convert the basic value terms into more operational value terms. By more operational terms I mean that a value enquiry can be developed in the context of moral and social theories by close contact

21

Economy and morality: a conceptual framework

Table 1.1

A system of ethics

Object

Value

(1) Basic value

(2) Operational value

(3) Ultimate end

Act Rule Being

Good Right Virtue

Efficiency Justice Excellence

Utility Rights Capability

with more concrete terms with substantive connotations. Second, it is also necessary to attribute axiomatic ultimate ends to basic values. By ultimate ends I mean that a type of meta-value is helpful as an ontological presumption underlying a specific paradigm of moral valuation. Thus a system of ethics is constructed by the specification of (1) basic values, (2) operational values, and (3) ultimate ends for each of the three approaches. To anticipate the discussion in Chapters 2 and 3, my system of ethics is summarized in Table 1.1. The basic values of ‘good, right, and virtue’ in the three approaches to ethics are transformed into the operational values of ‘efficiency, justice, and excellence,’ so that they can be linked to a wider knowledge of moral and social theories. Insofar as ‘efficiency, justice, and excellence’ are value concepts, the underlying concepts of the ultimate ends are identified as ‘utility, rights, and capability.’ Thus, in the evaluation of individual acts (first approach), efficiency is defined in terms of utility maximization as the ultimate end, and this relationship is valued by the abstract concept of good. In the evaluation of rules (second approach), justice is defined with reference to the rights of individuals under the institutions in question, and this relationship is finally valued by the concept of a right rule. In the evaluation of human existence (third approach), how a person should be is prescribed by the standard of excellence in order to cultivate human nature and capabilities and to realize a higher self as far as possible. This is the ethics of virtue. In short, my system of ethics consists of, first, a utility-based moral theory of good for individual acts; second, a rights-based moral theory of right for rules; and third, a capability-based theory of virtue for individual existence. Whereas the traditional theories of good, right, and virtue insisted that their own conceptions of basic values occupied the highest status and dominated all objects of valuations, I maintain that the three approaches should be complementary and be coordinated in terms of objects and values. Through the coordination of the three, each approach is defined as follows. First, a theory of individual good argues for the maximum utility

22

Values

for individuals given their desires and income, as is the case with standard economic theory. This is neither a theory for social institutions nor for individual existence. For a theory of good we do not accept utilitarianism, according to which what makes an act right is its maximizing of the social aggregate of individual utility. By good we do not mean a scalar signifying the social aggregate of individual goods, but a vector comprising a variety of individual goods. The Pareto principle can be regarded as a theory of good. Good in this sense should be subject to the rules of right and virtue. Second, a theory of right claims that right has the priority over good in the sense that the institutional framework of a just society should be designed to make various goods of individuals coexist without conflict. In other words, the right constrains the good and sets its boundaries. The issue of the priority of right over good was raised by Rawls’s critique of utilitarianism (Rawls 1971). Theories of the good and the right often take it for granted that a government or other authority should not interfere with individual desires and preferences because they assume that individuals are the best judges of their own lifestyles. But this assumption is questionable. Third, a theory of virtue concerns the nature of human existence and critically examines the quality of desires considered as a given in the pursuit of a good life and just rule. Specifically, it prescribes the development of human capabilities, self-realization, and individual and social accomplishment of excellence. A theory of virtue is the ethics of perfection. I argue for the primacy of virtue over good in the sense that the norms of virtue or excellence should critically evaluate the quality of good, as exhibited in Thomas Hill Green’s criticism of utilitarianism (Green 1883). But the value of virtue or excellence is subject to that of right or justice. Thus, my system of ethics assumes that right takes priority over virtue, and virtue takes priority over good. The hierarchy of right, virtue, and good is the central claim of this book, and it is argued from the viewpoint of the coordination of the economy and morality. Because the concept of liberty has not been mentioned as an important value, it might not appear to be a component of ethical theory. On the contrary, liberty always plays a crucial role in the ethics of good (efficiency), right (justice), and virtue (excellence). Freedom to choose is essential to maximize utility; positive or negative liberty is required to ensure justice; and liberty for self-realization is necessary to give full scope to one’s capabilities. But these conceptions of liberty are different depending on the requirements of efficiency, justice, and virtue. Therefore the concept of liberty itself does not characterize a distinctive ethical theory. Rather,

Economy and morality: a conceptual framework

23

different conceptions of liberty emerge as derivatives from basic and ultimate values in different approaches.

1.3

THE NATURE OF MORAL VALUES

Moral Values So far I have defined morality or ethics as social norms relating to individual acts, social institutions, and individual existence. On the basis of these norms, we prescribe the desirability of objects and evaluate them. Moral prescription and evaluation depend on certain value criteria called moral values. The concepts of good versus bad, right versus wrong, and virtue versus vice represent major moral values. Since a moral value is one of many values, the nature of moral values should be distinguished from values in general. A value has something to do with morality, but they are not the same. First, there are various other kinds of values including aesthetic values, economic values, religious values, and so on. These values are amoral in that they are neither moral nor immoral. A moral value must be valid for everyone in every instance if it is valid for a specific individual in a specific instance. In this sense, a moral value must be universalizable to an entire society. By contrast, other values reflect individual preferences and must not be forced on other persons. They remain subjective values. This does not mean that generic concepts of aesthetic values, economic values, religious values, and the like – which I will call ‘cultural value’– do not have social value (besides value to an individual). Here I mean that with regard to aesthetic value, for example, a question of which is desirable, Monet or Picasso, depends on subjective judgments of individuals. Second, a moral value provides the ultimate value judgment in that it is the highest social norm. It plays the role of a supreme court of appeals in establishing priorities among competing demands. The reason is explained by the raison d’être of morality in section 1.4. A scientific value that accrues to scientific activities in pursuit of truth has some affinity to a moral value for the two reasons just mentioned. First, truth as the criterion of a scientific value should be recognized and shared by all, and second, it is the ultimate criterion by which to judge and evaluate scientific knowledge. Both ethics and science occupy an analogous status in the areas of life and knowledge, respectively. As John Rawls aptly comments, ‘justice is the first virtue of social institutions, as truth is of systems of thought’ (1971, p. 3). Taking this a step further, we can say that knowledge and life are not separate. To learn how to live, one must learn what is moral. On the one

24

Values

hand, the pursuit of morality, unless accompanied by the pursuit of truth, is likely to degenerate into dogmatism and partisanship. On the other hand, a scientific activity based on a love of knowledge is a step toward the well-being of human communities, and morality is the highest thesis for man to learn. A close relationship between a moral value and a scientific value is noteworthy, although a shortsighted correspondence is to be avoided. Plato in the Phaedo quoted the words of Socrates: Hence if one wanted to discover the cause for anything coming into being or perishing or existing, the question to ask was how it was best for that thing to exist or to act or be acted upon. On this principle then the only thing that a man had to think about, whether in regard to himself or anything else, was what is best, what is the highest good. (Plato 1972, p. 123)

The correspondence of moral and intellectual excellence was the essence of the Greek ethic of virtue. Universalizability and Ultimate Normativity From the idea of the universalizability and ultimacy of morality, it follows that moral values involve a potential conflict because they compete for such a distinctive status. In contrast, tastes and preferences, however diverse they may be, are an individual’s business and entail no conflict. Moreover, the question of instrumental values for a certain end can be settled easily if there is enough knowledge of the end-and-means relationship. But because morality must apply universally as the ultimate normative criterion, it must be justified somehow by itself and therefore moral principles are constantly in conflict. Science also has continual controversies, although it ultimately strives for universal acceptance. Nevertheless, it is one-sided to regard morality as ‘a battle of the Gods’ – for two reasons. First, morality is rooted in the nature of ordinary human beings. They are endowed with moral sentiments and moral faculties, which entail moral judgments commonly entertained by individuals in a universalizable form. The basis of social formation and maintenance is immanent in the moral sense shared by individuals. Second, moral discussion can be undertaken, like a science, on the basis of logical deduction from a hypothesis; moral theorizing is neither a subjective opinion nor illogical nonsense. It can be constructed in compliance with rational procedures. The first reason relates to the naturalistic view of morality, the second to the constructivist view. Both viewpoints are necessary to the understanding of morality and need to be integrated in some way. In the process of moral theorizing, the question is raised whether moral

26

1.4

Values

THE INTEREST OF SOCIAL COEXISTENCE

Value and Interest: Towards Cultural Values and Moral Values Our next task is to ask why moral values have such a distinctive nature compared with other values. To address this problem, we must return to the concept of value in general. Ralph Perry stated that ‘any object, whatever it be, acquires value when any interest, whatever it be, is taken in it’ (Perry 1950, pp. 115–16). Although this definition needs to be qualified, I will accept the formulation of value in terms of interest as the starting point of our discussion because it is familiar to economists who begin with similar notions such as desires, wants, and so forth. Value is a rationalized idea about the desirability of objects, visible or invisible, tangible or intangible, in which human beings are interested. Desirability is assessed by the extent to which a specific interest is satisfied by a specific object. In terms of the idea of value, one evaluates objects and tries to acquire them. Consequently, value acts as a guide to the choice of actions and rules. Starting with the general definition of value in terms of interest, we face two issues that are oriented to opposite directions with regard to the interpretation of their relationship. If a value depends on human interest, there are various values according to various interests. Concerning various aspects of social life – economic, political, technological, scientific, artistic, religious, moral, and so forth, according to a conventional division – in which people are interested, there emerge various kinds of values such as economic, political, artistic, religious, and moral values. Now, the first question is how to arrive at a comprehensive view of value from these dispersed categories. This question is relevant to the understanding of a theory of value in terms of human activities in general. The second question is how to distinguish among these categories in a meaningful way that will make us to specify moral values. With regard to the first question, it is appropriate to refer to the NeoKantian philosophers, who actually defined philosophy as a theory of value and tried to provide a foundation for all domains of value (Schnädelbach 1984, p. 161). They believed that human activities are devoted to the realization of values, and that activities led by values are culture. They gave the generic name ‘cultural values’ to all different values lumped together. Wilhelm Windelband (1911) and Heinrich Rickert (1913), the NeoKantian philosophers of the Southwest German School, who founded the tradition of axiology, maintained the distinction between basic, internal, and rational values, on the one hand, and cultural values, on the other, the latter being a form that vests meanings in those activities that implement

Economy and morality: a conceptual framework

27

the former. Basic, internal, and rational values include abstract values such as religious values (the Holy), scientific values (the Truth), moral values (the Goodness), and aesthetic values (the Beauty). As an axiom, it is presumed that a human being has a will to promote these values; in Perry’s sense, a will may be interpreted as an interest. Cultural values are explained derivatively from a series of abstract, rational values. In other words, all human activities intended to realize abstract values are identified as cultural activities and provided with cultural values. Since human activities take place in society, culture represents the totality of shared values and the outcome of total activities in social practice. People are active in various fields of social practice because they are interested in those fields for various reasons. Thus culture as a lifestyle shared by people in a certain age and region involves cultural values that reflect a variety of human interests. Comparing cultures of different ages and countries will reveal that the standards of cultural values are universal as well as individual. A cultural value is an epistemological and evaluative form by which particular kinds of values are understood and coordinated. Although in the circle of Anglo-American ethics Perry’s value theory is well known, his definition of value owes a great deal to the Neo-Kantians. Concerning the Neo-Kantians, it is illuminating to examine their view of scientific activities. Science is said to artificially construct a patterned reality in light of some values in order to make something intellectually meaningful out of the infinite complexity of reality, and this is what Max Weber meant by the notion of ‘value-relevance’ (Wertbeziehung) (Weber [1904] 1949). The Neo-Kantians’ writings might suggest that some values precede scientific activities in choosing subject matter to implement the universal value of truth, and that a science is inevitably value-loaded but its objectivity is secured by reference to values. In my view, however, the opposite is true: subjective interest in the pursuit of knowledge on some objects must precede values, to which science is methodologically related according to the ‘value-relevance’ view. A value is merely constructed as the conceptual rationalization of a preceding subjective interest. I would call the totality of activities based on human interests and their outcomes ‘culture’ without presupposing several abstract higher values, as the Neo-Kantians maintained. The concept of culture overlaps and interacts with that of institutions; although institutions as social norms and social systems give order and rules to human interests and culture derived from them, it is culture that constructs and characterizes institutions in which human interests are developed. Our second question asks how we should differentiate various interests and values apart from a conventional classification of social domains. Whenever a value accrues to objects from interests that people have in

28

Values

them, we can evaluate, by means of value standards, to what extent they are satisfying human interests. Traditionally, the abstract and overarching term predicating the fulfillment of interest is the good, and the language of good or bad has been ordinarily used for all kinds of evaluation, but concrete standards are different for different objects; for example, the standard of a good university is different from that of a good car. More damaging to ethics is the convention that does not differentiate between different objects of moral evaluation and applies the single evaluative word good. I have already argued that we must differentiate between three general objects (that is, acts, rules, and existence) in moral valuation and use different words for their valuation (that is, good, right, and virtue); here it is necessary for us to differentiate between moral valuation per se and other valuation when there is a difference in the nature of interests. The Interest of Social Coexistence What kind of interest does a moral value rest on? It is claimed that the distinctive nature of moral value derives from the interest in which moral value originates. Morality embodies the social norms that enable individuals in a society to survive and coexist. The minimum common need people have is for safety. We want not only to refrain from deliberately harming others but also to show a due concern or respect for others in the hope that others will treat us similarly. I contend that a moral value rests on the most basic interests of human beings: social survival and coexistence. Moral sentiments or the moral sense of individuals are a reflection of such interests and are not so much emotional as rational in that they reveal the volition of individuals to act cooperatively according to rules. Thus a moral value is the criterion primarily prescribing desirable social rules or institutions based on the human interest in social coexistence. Furthermore, a moral value prescribes the character and behaviour of individuals that are consistent with desirable social rules or institutions. In this way, morality is developed in keeping with the three dimensions of individual character, individual behaviour, and social institutions to meet the human interest in social coexistence. At this stage of exposition, it may be allowable to call a desirable society a good society in the same way that we refer to a good university or a good car. When we consider morality in the light of a specific human interest, we can redefine the terms universalizability and ultimate normativity: first, a moral value is universally acceptable to all persons in a society who have a common interest in social coexistence, and second, it is superior to any other values in that it ensures the basic framework of social coexistence, whatever activities are involved in a social life. It is the nature of a moral

Economy and morality: a conceptual framework

29

value that desirable activities according to, for instance, an economic or a religious standard should be rejected or controlled by morality if they endanger human existence. Morality plays a critical role in constraining the various interests of one person so that they may be compatible with others in the society. Various values due to various interests are allowed only insofar as they comply with moral rules. Differentiating a moral value from other values, Perry explains that a moral value is concerned with the comparison and coordination of other values; in other words, ‘they [moral judgments] do not deal with interests per se, but with the relation of interests to the comprehensive purposes in which they are incorporated’ (Perry 1950, p. 137). Perry does not explicitly assume that the interest in social coexistence is the source of a moral value; he is more concerned with the harmonization of conflicting interests as the role of moral values. Thus a moral value relates to ‘the object of an allinclusive and harmonious system of interests’ (ibid., p. 659). His ideas of inclusiveness and harmonization of interests have a close structural affinity to my notions of universalizability and ultimate normativity of morality. In considering the relationship between values and interests advocated by Perry, it is necessary to introduce a lesson from economics. Although want or preference is used to explain an economic value, this concept expresses subjective attitudes similar to the concept of interest. It is a mistake to assume that want is the only cause of an economic value, because the scarcity of resources is another cause. The stronger the demand for an object and the harder it is to produce, the higher the economic value it commands. However strongly an object is wanted, it has no economic value if it is available in an infinite amount. Similarly, from an ethical perspective, subjective interest in any object is merely one of the causes of its value. It is my contention that any value, as long as it is located in a morally regulated world, must have an important source besides human interest; it must be constrained by the value standard of social rules. Perry’s definition is that a value rests on interest, but I argue that a value emerges when it is also subject to the precepts of a moral value. Values are always the product of a tension between interests and some constraints: the economic world is tight because of limited resources, and the moral world is tight because of the restrictions imposed by rules. The relationship between moral and scientific values emerges at the interface of life and knowledge. A scientific value has the ultimate normativity in the area of knowledge. But science is a kind of activity in social life and, like all other activities, is subject to the constraints of a moral value. This is the problem concerning the moral responsibility of scientists. This view differs from the value philosophy of the Neo-Kantians. In the hierarchy of values Windelband assigned a higher status to values such as

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Values

the Holy, Truth, Goodness, and Beauty because of their abstract nature. In contrast, I give the supreme status to a moral value because it is derived from the most basic interest: social coexistence. My reason is not based on the metaphysical view that a moral value is noble or concerned with an absolute end, like Plato’s theory of ideas. If it is necessary to put interest in human coexistence on a firmer basis, the superior status of morality can be grounded in the elementary truths concerning human beings and their environment, which H.L.A. Hart called ‘the minimum content of natural law’ (1961, pp. 189–95). He set forth five truisms – (1) human vulnerability, (2) approximate equality, (3) limited altruism, (4) limited resources, and (5) limited understanding and strength of will – and from them argued that for the minimum purpose of survival a society must have certain rules of conduct. From Value in General to Moral Value Given that value generally emerges from interest and that good generally measures the degree of value, the monolithic relationship of ‘interest– value–good’ covers the whole range of culture and cultural values. To articulate clearly the nature of morality – that moral values are shared by people and take precedence over other kinds of values – it is desirable to use distinct terms for moral valuation. For this purpose, I will remove moral value from the general value relationship and divide it into three categories to form the moral set: ‘good–right–virtue.’ This is the system of ethics presented in Table 1.1. The basic value that satisfies human interest in social coexistence is now called right and applied to the evaluation of social institutions or rules. Right is an alternative term for the vague notions of moral good or public good. Then, virtue applies to the evaluation of human character and is an alternative name for internal good or common good. Internal good (that is, various virtues) and external good (that is, fame, wealth, status, and power) constitute intrinsic good.2 Intrinsic good or good-in-itself is an object pursued for its own sake, in contrast to instrumental good. Instrumental good is an object pursued for its functions and depends on its technical evaluation as a means to certain ends. Good in the moral set is the residual after right and virtue are identified and represents personal good. The scope of good in the moral set is now reduced to external good and instrumental good in comparison with the usage in the overall relationship of ‘interest–value–good.’ Because of the long convention of the general usage of value, interchangeability of terms is inevitable. As a result of the judgments of a right society, right institutions, or right rules, it is possible to adapt moral

Economy and morality: a conceptual framework

31

judgments of rightness to individual behavior and individual character to ensure their compatibility with the right social rules. In fact, usage such as the right conduct or a right person, instead of good conduct or a virtuous person, is found in ordinary language. But we never refer to a right university or a right car. The value of a university or a car is judged instrumentally according to their proper functions and is measured by the terms ‘good’ or ‘bad.’ Evaluation of a good university or a good car depends largely on personal taste and is not universalizable, although to a certain extent there is general agreement on what constitutes a good university or a good car. In any case, these assessments apply to the instrumental good, not a moral value. I have argued that various values derived from human interests are constrained by the concept of right. This argument is now expressed by the priority of right over virtue and good and by the priority of virtue over good. It is significant to note how the valuation of these priorities can be done. Amartya Sen, in criticizing the assumption of ‘rational fools’ in economic theory, claimed that interests or desires in themselves are not a valuation and that valuing a life and measuring the happiness generated in that life are two different exercises (Sen 1985a, p. 12). For the judgment, planning, and realization of happiness, individuals as reflective selves in a society cannot avoid valuing how to live in addition to the consequences of feelings and desires. This means that Sen had in mind the functions of the right and virtue to regulate the good. Interestingly enough, besides moral judgments, right is used in scientific evaluation – for example, as a right theory, a right proof, or a right sentence. Scientific value is judged by whether a scientific work is universally valid and ultimately justified according to certain methodological rules. Although the morally right and the scientifically right are quite different in substance, the value standards in ethics and science share two characteristics – universalizability and ultimate normativity – so that the same evaluative concept of right is often applied to both characteristics. Pareto’s Human Instinct and Ideology To digress for a moment, let us examine Perry’s philosophical argument on the relationship between value and interest in the context of social science. In his sociological investigation, Vilfredo Pareto depicts the following triangle ABC, as given in Figure 1.2 (Pareto [1916] 1935, vol. 1, p. 88). On the one hand, Pareto named nonlogical elements (A) such as human instincts and sentiments ‘residues’ and considered them to be the driving force of human actions (B). On the other hand, he regarded theory,

32

Values C

A

Figure 1.2

B

Pareto’s triangle

doctrine, and ideology as a reflection of nonlogical elements (A), identified them as logical or pseudological deductions from ‘residues,’ and called them ‘derivations’ (C). Theory, doctrine, and ideology, in his view, are merely the rationalized embellishments of instincts and sentiments. Although these artifacts are not necessarily justified empirically and are sometimes essentially rhetorical, they have social utility, apart from truth, to explain and induce human actions. In practice, however, it is not really C but A that produces B. If we apply this idea to our discussion, it will be revealed that a value is a rationalization of instincts. Morality and moral values are rational reconstructions of interest in social coexistence. Perry’s founding of values according to interests means ideal rationalization of interests that are a manifestation of human instincts. The basic motive of a person as a moral entity or a moral agency is to be found in ‘residues,’ not in morality or moral values. Pareto found 52 residues in all and divided them into six classes. The residues responsible for moral actions are those of persistence of aggregates and of sociability. Referring to the view of the Neo-Kantians that value-relevance underlies science, I argued that rather than framing scientific issues on the presupposition of some values, the subjective interests of scientists in certain issues precede and lead to scientific activity. In terms of Pareto’s triangle, the doctrine of ‘value-relevance’ explains how scientific activities (B) are justified by scientific values (C) as one of cultural values. But scientific activities (B) emerge from the instinct of innovation (A) that is classified as ‘residues,’ and scientific values (C) are nothing more than a rationalization of human instincts that drive scientific activities and the quest for knowledge.

Economy and morality: a conceptual framework

1.5

33

THE NATURE OF ECONOMIC VALUES

Good and Goods Now let us turn from the moral world to the economic one. The economy consists of activities involving resource allocation, in which people with various interests try to acquire concrete objects that they need. From the social point of view, the purpose of the economy is to satisfy the interests of people in the present and future consumption of goods and services. Although the economy is one aspect of social life, it is closely related to other aspects. Corresponding to the interests of people, we conventionally distinguish between aspects or domains of life: the economy, politics, science, technology, art, religion, and so on. Whatever the interest in the various domains may be, economic resources are always required to satisfy them. In an exchange economy, money is the all-inclusive expression of the means for acquiring economic resources. Basically, the satisfaction of people’s interests requires goods and services in real terms. To acquire goods and services, it is necessary to have money, which in turn is obtained by rendering the services of factors of production. In this fashion, the economic world is pervasively developed to generate a resources–goods relationship to support activities in all domains of social life. The use of money facilitates the economic process in real terms. When people evaluate objects in light of their own interests, they use the terms good or bad according to whether or not the objects satisfy those interests. Corresponding to the adjective good there are two related nouns: the abstract noun ‘the good or goodness,’ indicating positive evaluation that an object is desirable, and the common noun ‘a good or goods,’ meaning a concrete object that produces the goodness. The latter – the key concept of economics – is usually expressed as ‘goods and services’ and corresponds to instrumental goods. The end–means relationship between the good and goods in English is comparable to that between gut and Güter in German and bien and biens in French. In economics, concepts such as welfare or utility are generally used instead of the good to indicate the ultimate ends pursued by economic agents by means of goods. This convention conceals the process in which goods are related to the moral world through the concept of goodness. Good, welfare, and utility all mean the same thing: those things to be pursued as the ultimate ends. If the source of a value is an interest in general, under the proviso of certain restrictions, an interest in the acquisition and disposal of goods and services is the source of demand for goods and services in the economic world. Whatever interest may exist behind the need for specific goods and services, economists, without undertaking an enquiry of the nature of

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interests, claim that the purpose of economic activity is to satisfy given wants. Then, subjective utility is produced by the satisfaction of individual wants, on the one hand, and economic values are attributed to the objects (goods, services, and factors of production) that contribute to the satisfaction of wants, taking into account the supply conditions of the objects, on the other. In a money economy, these objects are given prices that are indexes of an economic value; and the net total monetary values of these objects in a society comprise the national income. Since the price of a commodity measures the sacrifice that people are willing to make to satisfy their interest in having it rather than being without it, the total national income is considered to be the sum of the strength of desires for goods and services (not the strength of satisfactions derived from them). A.C. Pigou established that the part of subjective welfare that is linked with the measuring-rod of money is called economic welfare (Pigou [1920] 1932, p. 11). Thus, Pigouvian ‘coordinates’ are proposed between subjective welfare, on the one hand, and objective national income, on the other. By this rationale Pigou was engaged in the analysis of national income in the name of welfare economics without entering into welfare that is the state of subjective consciousness. Yet even within the scope of economic welfare, we cannot ignore the gaps between the value of goods and the good or welfare derived from them. Apart from a measurement problem, there is a categorical gap between goods and good. Whereas goods and services are evaluated pecuniarily in markets, the effects caused by the production and consumption of goods and services will be sometimes over and sometimes under the market evaluation. This effect is called positive or negative externalities, or external economies or diseconomies. It means that positive or negative external effects caused by economic activities are not settled in terms of money and remain as unpaid side effects of the activities of one agent on others. An example of external diseconomies is environmental pollution. The gap between good and goods signifies an aspect of the relationship between private and public interests, or economy and morality. The Universalizing Capacity of Economic Values Two important points should be mentioned. First, an economic value does not mean an evaluation of the kind and quality of interests from the viewpoint of noneconomic welfare. Diverse human interests derived from various sources of life are drawn to the economic domain and become the basis of an economic interest in goods and services. However, an economic value, abstracting from differences in the kind and quality of interests, evaluates the objects by a unitary money measure. This is the

Economy and morality: a conceptual framework

35

transformation of economic values from quality to quantity. Plural values that first emerge on the noneconomic dimensions of interests are aggregated into a one-dimensional value in the economic domain. Second, what does an economic valuation consist of ? Goods and services are produced from resources to satisfy wants or interests. Goods and services mediate between resources and wants. The tension that exists between resources and wants is called scarcity. Goods and services located midway between resources and wants naturally have scarcity, and an economic value of goods and services measures the degree of that scarcity. Money income, by which one can purchase goods and services, and economic resources, from which one can produce goods and services, also receive economic values imputed to the scarcity of goods and services. This is the principle of imputation asserted by the Austrian School of Economics, the forerunner of Austrian and German axiology. Whereas interests and wants are subjective, resources have alternative uses to satisfy various interests and wants; thus the scarcity of various goods depends on the objective evaluation reached through the interrelationship of plural markets constrained by economic resources. The interrelationship among scarce goods is actually represented by the network of relative prices. Here we have the transformation of economic values from subjectivity to objectivity. An economic value, which can transform all kinds of values both from quality to quantity and from subjectivity to objectivity, has a remarkable capacity for universalization. Money prices perform these double functions. With such a unique feature, an economic society is an evaluative society. In view of the Pareto’s triangle thesis that value as an ideal construct is the rationalization of human instinct, an economic society equipped with the measuring-rod of money as a means of measuring values is a highly developed evaluative society. It is not only due to the speed of industrialization that the economy has swallowed all other domains of society, rather than remaining a single domain among many. The fact that an economic society consists of an evaluative society with both a rational ideology and a specific means of economic valuation is the foundation for the universal dominance of the economy over society. Industrial development based on technological innovation was made possible only on this foundation. The essence of technological innovation is to relieve the tension between economic resources and the good. Statistical studies of economic growth leave no doubt that the economic world has contributed to an increase in the good overwhelmingly through technological and organizational innovation, which represents a challenge to economic scarcity, rather than a rise in economic efficiency or resource input. It is one of the conclusions of empirical research on economic growth that the way to enhance welfare in terms of

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income is not so much improvement of ‘efficiency through adaptation’ in a stationary economy and an increase of resource input as ‘growth through innovation’ that challenges economic scarcity and economic values.3

1.6

TWO SCHEMES OF SOCIAL INTEGRATION

The Economic World and the Moral World We have seen that both moral values and economic values have a high capacity for the universalization of values. The social function of the economy is to coordinate the individuals’ efforts to acquire goods and services that will make all human activities feasible. The economy is related to all domains of human activity because it contributes to the realization of all kinds of good. Nevertheless, an economic value abstracts from every circumstance in which people need specific goods and services and expresses a monetary aggregate of desires that is measured objectively by market prices. So that an economic value may dominate society by means of a monetary unit, a market economic system comprising goods and services, land, labor, and capital should be established on the basis of a monetary economy. The universal dominance of an economic value that is potentially available in the form of economic scarcity in any economic society appears in the form of monetary valuation of all social domains in the market economy. On the other hand, a moral value is universally valid as the standard that enables the survival and coexistence of human beings, permitting the pursuit of their plural conceptions of the good. In view of the supremacy of ethics, moral norms evaluate and regulate by the conception of right all domains of social life, including the economy. There is a remarkable parallelism of the economic and moral worlds. In various domains of social life there are plural conceptions of good that are based on various human interests. In the economic world, insofar as human interest and human good are constrained by scarcity, various kinds of good are ultimately controlled by the unitary regulative factor of resources. Resources permit alternative uses for producing various goods and make the social coexistence of human interests economically feasible. Concrete means for realizing the good is called goods along with services. In contrast, the moral world uses the regulative idea of the right to ensure that plural conceptions of the good coexist in society. Concrete institutional measures for realizing the right is called rights, which directly or indirectly regulate the good. The pair relationship of ‘end–means’ is represented as ‘good– goods’ in economics and as ‘right–rights’ in ethics.

Economy and morality: a conceptual framework

37

We can find another interesting parallelism of the economy and morality. Just as technological innovation rather than efficiency relieves the tension between economic resources and the good, so human developments rather than justice as the mediator of conflicting conceptions of the good relieves the tension between the right and the good. Human developments or improvements will make the restraint of the good by moral principles unnecessary, although they are not so easily realized as innovation in the economic world. The economic world and the moral world are thus two grand schemes that regulate the plural conceptions of human good by their own distinct universalizing capacities. The resource in economics and the right in ethics are the two ultimate regulators of the social coexistence of multiple conceptions of the human good. Goods as physical objects are produced from resources as an all-purpose means, and rights as institutional devices are derived from the right as the highest moral value; goods and rights constitute a pair that contributes materially to the coordinated realization of the good in the two worlds. It is my contention that the good builds the interface between the economic world and the moral world. An economic value is created not by interests alone but also by a tension between limited available resources and infinite desires for the good. Similarly, a moral value is established on the basis of a tension between the imperatives of social coexistence and infinite desires for the good. To describe the relationship between morality and the economy amounts to formulating the relationship between the two grand schemes of social integration. Two Kinds of Plurality of Good It is important that the interface between the two worlds is located on the dimension of the good. Morality is not a prescription in a vacuum but is addressed to self-interested persons with their own ideas of good. Nor is an economy an amoral world where the creature of economic textbooks (that is, economic man) exists without the constraints of morality. As morality generally regulates the normative aspect of social institutions, it is a fundamental constituent of the framework of economic activity. So how can the two worlds be integrated? To answer this question it is necessary to explore the nature of the good that builds the interface: that is, the plurality of the good in two senses. This can be claimed from a moral point of view despite the remarkable capacity for the universalization of economic values. Rather, the claim of the plurality of the good is a theoretical foundation of a moral constraint on the economy.

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The plurality of the good in the first sense is that the good pursued in the economic world does not represent a scalar but a vector, so to speak, and that it comprises a large number of incommensurable individuals’ goods. Although people are ideally equal, they are in fact different from one another. Therefore, the distribution of the good among individuals must be considered from the moral point of view. The plurality of the good in the second sense is that even the good pursued in the economic world comprises different kinds and qualities of the good or utility, which result from the different interests and needs of individuals (Sen 1980/81; Anderson 1993). Moreover, those scientific, aesthetic, and religious values that are not satisfactorily represented by economic values are located outside the interface and are incommensurable with economic values. Goodness thus is characterized by its incommensurability among individuals and among qualities of the good. Indeed, economic values, not only by transforming subjectivity to objectivity of the good, but also by transforming quality to quantity of the good, contribute to the universalization and unification of the economic world. The moral world, however, takes seriously the two kinds of moral plurality of the good that precedes the two kinds of economic transformation of the good. The two worlds, with different approaches to the good, are joined at the interface of the good, and theoretical issues of integration of the two worlds are raised as follows. Efficiency and Justice – the First Integration Let us begin with the differences of the good among individuals. It is generally accepted that the imperative of efficiency in resource allocation is derived from the condition of scarcity in the economic world. The imperative of justice in distributing the outcome is derived from the same condition of scarcity, for scarce income and wealth produced under scarce conditions must be distributed justly. Economics, however, has avoided dealing with the problem of distribution and left it to deliberation in ethics. Whatever the division of labor in economics and ethics, any economic institution should define the methods for distributing scarce goods produced from scarce resources. In other words, just as economic institutions should be concerned with efficient resource allocation in the production of goods, so they should be concerned with the just distribution of goods among individuals from a moral point of view. The relationship between the two value concepts, efficiency and justice, is the first case for the integration of the economy and morality. In this respect, the basic question is how to define the ownership of resources; this is the logical starting point for developing an economic

Economy and morality: a conceptual framework

39

mechanism. The moral world enters the economic world through the entitlement of resources by defining ownership rights. For example, under the economic institutions of capitalism, exchange in markets is based on the private ownership of resources. On the other hand, the provision of social services in a welfare state is based on the claim of social rights to specific goods and services. Unlike a socialist state, the welfare state operates not according to the stock of resources but according to the flow of goods and services. Furthermore, as mentioned above with regard to externalities, some qualifications for ownership are introduced to fill the gap between private and social interests. The structure of the moral world to be linked with the economic world differs according to different moral theories. The ethics of utilitarianism holds that there is no moral value higher than the good and that it is right to maximize the sum total of goods. The good is prior to the right. Therefore, the ownership of resources and the distribution of the good must be determined to maximize the good in a society through the implementation of the rights. In contrast, in the ethics of contractarianism, the right is prior to the good, a concept that governs the distribution of resources in the welfare state. Liberty and Excellence – the Second Integration The plurality of the good with regard to its quality suggests a new view of liberty or freedom. In a market economy, liberty, like efficiency, is ordinarily considered to be a basic value. As far as the economic behaviour of individuals is concerned, liberty only means freedom of choice, of exchange, and of competition, that is, the freedom required to realize economic efficiency. In economics, individuals are assumed to choose rationally a pattern of consumer goods, work, leisure, and so on according to given utility functions. But individual freedom is also instrumental in revising the aims of individuals and in realizing the better good, because the good is not necessarily the ultimate goal. In this sense, freedom is the basic value of the moral world, and free and autonomous persons revise their notion of the good. For them, freedom has to do with the excellence that is pursued by freedom. The notion of excellence is nothing more than the virtue in traditional ethics. The quality of the human entity as a stock is constantly being revised within the security of freedom. Virtue or excellence concerning the entity of individuals reflects what is desired beyond economic happiness when individuals are considered to be free and autonomous persons. Liberty is the basic value underlying the economic and moral worlds; the true value of liberty in an economy does not consist of mere freedom of choice, of exchange, and of competition under given conditions, but of

41

Economy and morality: a conceptual framework [JUSTICE]

Right

Rights

[EFFICIENCY]

Good

Goods

Resource

Capability

Virtue

[EXCELLENCE]

Figure 1.4

The two worlds of the economy and morality

is raised about the nature of the good: that is, the differences of the good among individuals and the differences in the quality of the good should be taken seriously. Utilitarianism, a good-based moral theory, does not recognize these differences and maintains the commensurability of the good for different individuals and different qualities. In this theory, the good in a society is represented as a scalar value. Instead, I assume the dual plurality in good and discuss the ensuing issues in the wider perspective of the economy and morality. Elements of the good in a society are expressed in the matrix with a row and a column consisting of the goods of different individuals and different qualities. The first issue is the relationship between ‘efficiency versus justice,’ and the second is between ‘liberty versus excellence.’ While efficiency versus justice is understood as an attempt to extend beyond traditional welfarist economics, liberty versus excellence also broadens the economic horizon. By framing these two issues at the interface of the good, we are able to address the two grand paradigms of moral theory, that is, right (justice) and virtue (excellence) as they relate to the economic world and the economics of the good, articulated by efficiency and liberty. To explain the two issues in terms of the structural system of ethics presented in Table 1.1 earlier in this chapter, Figure 1.4 illustrates the image of

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the relationship between the economic world and the moral world. While the economic world consists of the paradigm of ‘resource–goods–good,’ the moral world consists of two paradigms: ‘right–rights–good’ and ‘virtue–capability–good.’ Thus the good forms a boundary between the two worlds in the dual sense that the paradigms of right and virtue come into contact with the paradigm of good. It will be argued that the right has priority over virtue, and virtue has priority over the good. However, the strength of the economic world is that it has the source of good, that is, resources. Right and virtue, or justice and excellence, are the rules on the dimension of values that regulate and evaluate the real economic process. Without the real process consisting of ‘resource– goods–good,’ the systems of values consisting of ‘right–rights–good’ and ‘virtue–capability–good’ would be a house of cards. If the two worlds are coordinated by the idea of hierarchical relationship among good, right, and virtue, economic ethics will emerge correspondingly as the normative knowledge about (1) efficient allocation, (2) just distribution, and (3) virtuous utilization of scarce resources, whereas traditional normative economics has remained merely the knowledge about the efficient allocation of resources. Economics and Ethics Juxtaposed Having designed the three-layered system of ethics, we might consider how it can be linked with the system of economics. To extend the tasks of normative economics we must examine the viability of ethical knowledge in economics without forcing the extension of the latter’s scope. Economics has been regarded as a science that relates to the conditions promoting human well-being by material means. Despite competing directions in economics, it is generally agreed that, broadly conceived economics consists of three branches: economic statics, economic dynamics, and economic sociology (or institutional economics). The basic paradigm of mainstream economics through classical and neoclassical economics is to explain the economic process and mechanism by which the maximization of production and utility is attained under given preferences, technology, and a fixed amount of resources (economic statics), and under changing condition of these exogenous factors (economic dynamics). Although economic sociology or institutional economics has not been regarded as the mainstream, it deals with the institutional framework (economic, political, and social institutions) within which economic behavior takes place. In other words, economic sociology is concerned with the impact of institutional givens on static and dynamic economics and their changes in the historical context. The sociological direction was pioneered by the German Historical School of Economics (Shionoya 2005).

Economy and morality: a conceptual framework

43

Each branch in the system of economics is defined by the endogenous and exogenous variables in each model with its own hypothesized mechanisms, and exogenously given data are endogenized consecutively by moving from static economic theory to dynamic economic theory to economic sociology. In contrast to the focus on a static equilibrium with given preferences and technology in economic statics, economic dynamics is characterized by technological innovations, and economic sociology by changes in institutions. Thus the subject matter of economics broadly conceived involves the relationship between the well-being or happiness of individuals, on the one hand, and the goods, resources, and institutions as the means to that wellbeing, on the other. From the standpoint of normative economics, we can argue that economic ethics provides normative knowledge about several aspects of this relationship, which are defined as (1) the efficient allocation, (2) just distribution, and (3) virtuous utilization of scarce goods and resources. All of these aspects legitimately belong within the scope of economics because they are all concerned with different meanings of the use of scarce goods and resources, and, importantly, they correspond with the three aspects of our ethical system: (1) good–efficiency, (2) right–justice, and (3) virtue–excellence. Current normative economics (or welfare economics) remains merely the knowledge about the efficient allocation of scarce goods (1). An examination of a family of teleological concepts in economics might be necessary. Although the concepts of happiness, well-being, welfare, utility, satisfaction, and so on are often used interchangeably in the literature of economics, psychology, and philosophy as a general expression for the motivation and evaluation of human behavior, I find it helpful to distinguish the overarching, though currently vague, commonsense notion of ‘well-being’ (or happiness) from the narrow concept of ‘utility’ traditionally used in economic theory. The distinction is twofold. First, the well-being of a person is the state of overall satisfaction with his life as a whole; it is drawn not only from the consumption of goods and services in the private sphere, but also from participation in the public sphere via democratic institutions (Frey and Stuzer 2002). A just society, one that guarantees the right to have opinions on public issues and to participate in public decision-making, will increase individual well-being (Hirschman 1989). As a result of democratic participation in public decision-making, the establishment of an egalitarian social infrastructure is expected to develop the self-respect of individuals, an important ingredient of happiness. In other words, the well-being of a person measures the worthiness of life in the public and private spheres of society. The measure of well-being locates individuals and their subjective judgments influenced

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by institutions and supports an institutional approach to well-being. Institutions consist of law, morality, and customs. Second, the well-being of a person is also influenced by the internal conditions of human existence (being), whereas utility measures the quantity of pleasure flowing from consumer behavior. An analogy of the distinction between stock and flow in economics might be illuminating in distinguishing between well-being and utility. Besides the welfare effects of individual behavior and public institutions, well-being depends on human flourishing, realization of capabilities, and perfection of personality through the internal improvement of human existence or stock. This twofold distinction is not merely a matter of terminology but reflects a theoretical difference between justice and virtue ethics vis-à-vis hedonistic ethics. The need to introduce justice and virtue ethics into normative economics represents my solution to the so-called paradox of happiness in economics (Easterlin 2002). The discussion of the paradoxes in economics and psychology is based on international comparative studies of self-reports on the subjective wellbeing of individuals (Veenhoven 1993). The paradox of happiness has been described as the finding that increasing income through economic growth does not always increase happiness. More precisely, it is claimed that (1) satisfaction varies with income in the domestic cross-section perspective, (2) satisfaction does not vary with income in the domestic time-series perspective, and (3) satisfaction does not vary with income in the international cross-section perspective. Subsequent research has qualified these claims because there is, of course, a positive link between satisfaction and income primarily at very low levels of income domestically and internationally. According to my ethical framework, the commonsense view of subjective well-being is based on (1) the efficient allocation, (2) just distribution, and (3) virtuous utilization of scarce resources, and it is analyzed in terms of (1) good–efficiency, (2) right–justice, and (3) virtue–excellence. Based on this framework, let us compare the system of economics comprising the three branches with the system of ethics I have constructed consisting of the hierarchy of ‘right, virtue, and good.’ By juxtaposing the two systems, we can see, first, that economic statics with a focus on the allocation of resources through the market mechanism is the proper object of moral valuation in terms of the set of notions ‘act–good–efficiency–utility.’ This is what contemporary welfare economics has done. Second, economic dynamics with an emphasis on Schumpeterian innovations corresponds with moral valuation in terms of virtue ethics, that is, the set of notions ‘existence–virtue–excellence–capability.’ From the ethical point of view, economic dynamics is concerned not so much with economic growth

Economy and morality: a conceptual framework

Table 1.2

45

Juxtaposition of economics and ethics

Branch of economics

Task of economic ethics

Branch of ethics

Economic sociology Economic dynamics Economic statics

Just distribution Virtuous utilization Efficient allocation

Right (justice) Virtue (excellence) Good (efficiency)

based on changes in external factors, as with the realization of human excellence, perfection, and quality of life through the perfectionist utilization of resources. In this respect the conceptual gap between conventional economics and ethics is large, and it is worthy of special attention. Third, economic sociology, a science of social institutions, is primarily concerned with rules for the distribution of Rawls’s ‘primary goods,’ including basic liberties, opportunities, social safety nets, social status, and income and wealth; it is the major counterpart of justice ethics, whose key words are ‘rule–right–justice–rights.’ Table 1.2 summarizes how the branches of economics are related to those of ethics through the intermediary of economic ethics. The juxtaposition of the system of economics and that of ethics reveals the archaeological structure of moral philosophy or moral science in seventeenth- and eighteenth-century Europe. It is interesting to examine the structure of moral philosophy in those ages in which the specific disciplines of social science were unseparated and moral philosophy as an overarching science was contrasted with natural philosophy. An entry of ‘Moral Philosophy’ in Encyclopaedia Britannica (1771) describes: ‘Moral philosophy is the science of manners or duty; which it traces from man’s nature and condition, and shews to terminate in his happiness. In other words, it is the knowledge of our duty and felicity; or the art of being virtuous and happy’ (vol. 3, p. 270). If moral philosophy was originally concerned with a system of rules based on man’s habitual power of becoming virtuous and happy, it is possible for us to interpret that its focus was more on the ethics of virtue (excellence) in terms of human nature rather than that of right (justice) and good (efficiency) in designing the structure of the economy and society. The issue of efficiency versus justice, or growth versus equality, which has been well known to economists, is an economic version of the moral issue of good versus right. In contrast, starting with human nature and capabilities, virtue ethics evaluates human functioning and character, and argues that the developments of human attributes based on the perfectionist utilization of economic resources brings about human excellence and flourishing as exhibited in the social practice of a community. To develop virtue ethics in terms of economic practice and mechanisms is a new task

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of economic philosophy and will lay the theoretical groundwork for the criticism of materially oriented economic growth, for the promotion of the quality of life, and for the self-realization of the individual. Historians of economic thought might be interested in the rich reservoir of virtue ethics – for example, in Aristotle, Marx, Ruskin, Green, and Nietzsche – to identify images expressed in rhetoric and ideology of what might be called the economics of virtue. In the economics camp, Schumpeter was a rare bird who successfully ventured to transform the moral science of virtue into the economics of leadership and entrepreneurship, the core of economic dynamics (Shionoya 1997, pp. 166–75). He applied the unique idea of differentiating a static and a dynamic economy by distinguishing between static or hedonistic man and dynamic or energetic man, each with different behaviours and motivations. Tibor Scitovsky’s unfinished attempt to distinguish between stimulation and comfort also led to the economics of virtues (Scitovsky 1976). A Framework of Value and Method Having addressed the theoretical issues concerning economics and ethics, we will now touch on four schools of thought in contemporary moral philosophy: utilitarianism, contractarianism, libertarianism, and communitarianism. Chapter 2 covers utilitarianism and contractarianism in greater depth, and Chapter 3 deals with libertarianism and communitarianism. In the early 1970s John Rawls challenged utilitarianism and established a new dominant paradigm of justice, which is called contractarianism. While utilitarians naturally took defensive measures against Rawls, criticism also came from libertarianism and communitarianism. Table 1.3 classifies the contemporary schools of thought in moral philosophy. The value and method of each school are located in the column and row of the table respectively. Across the top of the table, two kinds of values (that is, good and right) are distinguished; they correspond with the two different objects of moral evaluation (that is, individual acts and social institutions). In the Table 1.3

Contemporary moral philosophy

Value Method

Good

Individualism Holism

Right Contractarianism Libertarianism (justice) (liberty)

Utilitarianism Communitar(efficiency) ianism (virtue)

Economy and morality: a conceptual framework

47

left column, two kinds of methods (that is, methodological individualism and holism) are distinguished. The value concepts in parentheses indicate the key notions of the respective theories. A confrontation between utilitarianism and contractarianism centers around utility versus rights; the key criterion of utilitarianism is efficiency in producing outcomes (good) of individual acts, whereas that of contractarianism is justice in distributing rights preceding the outcomes. They are also different with regard to method, that is, holism versus individualism. Although utilitarianism starts with the view that a society consists of individuals, it conflates the utilities of all individuals into a social aggregate, and only the total utility has a normative value. In the open confrontation between libertarianism and communitarianism, liberty is to libertarianism what virtue is to communitarianism. Whereas the former is a liberty-based moral theory of right, the latter is a virtue-based moral theory of good. In terms of method, libertarianism belongs to individualism and communitarianism to holism. Communitarianism claims the pursuit of the common good as its moral goal, which consists of various virtues; it is critical of utilitarianism, which makes no distinction in the quality of utility. Although libertarianism regards individual liberty as morally right, it opposes contractarianism in terms of the conflict between liberty and justice. Contractarianism, or social contract theory, is based on individualism and emphasizes justice as rights, so that its structure favors both liberty and equality. Consequently, contractarianism is attacked by right-respecting libertarian theory for its claim of social equality, while it is attacked by good-respecting communitarian theory for its claim of individual liberty (Mulhall and Swift 1992, pp. x–xi). It is interesting that the two vacant spaces in Table 1.3 can in fact be filled in by two adversaries in the Methodenstreit (controversy on method in the history of economics): theoretical economics and historical economics. This controversy will be discussed along with the contemporary liberal– communitarian debate in Chapter 3.3. This analysis will prove the utility of Table 1.3 in providing a bird’s-eye view of major issues at the interface of economics and ethics.

NOTES 1. ‘[A]s against Robbins, economics is essentially a moral science and not a natural science. That is to say, it employs introspection and judgments of value’ (Keynes’s letter to R.F. Harrod, dated 4 July, 1938 in Keynes 1973, p. 297). 2. I am following MacIntyre’s definitions of internal and external goods (MacIntyre [1981] 1984, pp. 189–90).

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3. On the basis of the estimated aggregate production function for 1909–49 in the US, Robert Solow (1957) concluded that output per work hour increased at a rate of 1.5 per cent per year, with 87.5 per cent of the increase attributable to technical change and the remaining 12.5 per cent to increased use of capital. The similar results were also obtained for other countries.

2.

Efficiency and justice

2.1

A CRITIQUE OF WELFARISM

Allocative Efficiency and Distributive Justice In economics, it is commonly argued that there are two normative values for the evaluation of society: efficiency in allocating scarce resources and justice in distributing the outcomes of production. Let us assume that society’s self-interested members have almost unlimited desires and that resources are limited. Note that of the five factors in society that necessarily demand a moral code, which H.L.A. Hart called ‘the minimum content of natural law’ (see Chapter 1, section 1.4), limited altruism (or dominant self-interest) and limited resources are the most fundamental. Based on this assumption, it is clear that (1) the self-interested members agree on the need for the division and cooperation of labor to increase the total outcome of production, and (2) they have a conflict of interest on how that limited outcome should be distributed. In depicting the economic world and the moral world, I have argued that ‘resources’ and ‘right’ are the constraints of the ‘good’ in each world respectively. In view of these constraints, problem (1) will be solved by determining the ownership of resources by means of ‘efficiency through adaptation,’ because it is a technical problem concerning the tension between the good and resources. More basically, the tension will be relieved by ‘growth through innovation.’ The economic world appears self-contained if efficiency and growth are solved. In contrast, problem (2) is concerned with the distribution of the limited ‘good’ among members and must be solved in a just manner according to the constraints by the right. Analogous to technological innovation, an improvement in human propensities might be expected to overcome the conflict of interests and to relieve the tension in the moral world. In our system of ethics, innovation and virtues have in common the value of excellence. The stability of a society depends on the solution of distribution issues, which then makes it possible for individuals to pursue their own goals through the cooperation of the other members. A consensus of opinion on distributive justice is essential to the social coexistence of individual 49

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activities including economic ones. Allocative efficiency and distributive justice are two sides of the same coin, which appear at the same time in the world of self-interest and scarcity. Normative economics must be able to answer both questions consistently. Normative economics, however, has separated the problems of efficiency and justice and concentrated on the former, so that conventional economists view efficiency and justice as a trade-off and leave the problem of distribution to ethics without analyzing the notion of justice. We will begin this discussion by exploring the reasons why economics deals with the matter in this way. This will include not only a criticism of mainstream economics but also a constructive orientation of the issue. Utility versus Rights Of the three basic values in the system of ethics presented in Chapter 1 (see Table 1.1), we are concerned here with two: good and right. Corresponding to the antithesis ‘good versus right,’ we can define ‘efficiency versus justice’ in terms of the operational value and ‘utility versus rights’ in terms of the ultimate end. In dealing with these pairs of antitheses, let us consider welfarism including utilitarianism, on the one hand, and the contractarianism of John Rawls, on the other. The former includes mainstream normative economics or welfare economics. As indicated in Chapter 1, the two worlds that have been envisaged separately by economics and ethics interface at the concept of the good (see Figure 1.4). Mainstream economics identifies the good with utility and holds that the framework of ‘resource–goods–good’ has its own autonomous logic given resources, technology, and preference.1 But it must be recognized that this framework interfaces with the moral framework of ‘right–rights– good,’ and that at this interface of the two frames the right has supremacy over the good by the very nature of morality. This relationship is institutionally implemented by means of rights. In a market economy, the ownership of resources is the precondition of economic exchange and is based on the assignment of civil rights; in the welfare state, the provision of social services by the government is grounded in the claim of social rights. The stipulation of the world of the good by means of rights depends on the moral imperative of the social coexistence of individual activities, which is oriented to the realization of plural goods, ends, and aims. Even if the moral imperative is accepted, what matters is that there are competing interpretations of morality in substantive terms. Moreover, moral thinking is sometimes not independent of economic thinking and is greatly influenced by the latter’s key notions of utility and efficiency. There are two opposing views on the superiority of right versus good: the

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good is superior to the right and the right is superior to the good. For the former, morality amounts to the rule of efficiency, which means getting the most out of a given input. Maximization of the good in terms of utility is regarded as right, and the right is stipulated accordingly; thus, ownership and social needs are all defined for the effective operation of a market economy. In the case of the right’s superiority, although the pursuit of the good is accepted, it is subject to the rule of the right, which makes the social coexistence of plural goods possible. Interests in coexistence are based on the equal rights of human beings abstracted from different individuals with different identities. ‘Good versus right’ is reduced to ‘utility versus rights.’ The conflict over the priority of the good versus right in contemporary moral philosophy is represented by utilitarianism versus contractarianism. This confrontation can be expressed in diverse ways: teleology versus deontology, consequentialism versus non-consequentialism, welfarism versus non-welfarism, and utility versus rights. Economics has been definitely influenced by teleology, consequentialism, utilitarianism, and welfarism. Economists are accustomed to the concepts in the utility group of thought, but not to deontology, non-consequentialism, non-welfarism, and contractarianism. Therefore, to analyze the relationship between the economy and morality we must return to the basis of the two grand philosophical positions. Let us begin with the utility group. Welfarism, Utilitarianism, and the Pareto Principle Welfarism, a moral theory of the good, asserts that the goodness of a state is to be evaluated entirely by the information about individual utility (Sen 1979, p. 464). Utilitarianism, a typical version of welfarism, contends that the goodness of an act or an institution is to be judged by its impacts on the sum total of individual utility. Utilitarianism is an amalgam of three distinct principles: welfarism, consequentialism, and aggregation (Sen and Williams 1982, pp. 3–4). According to consequentialism, the value of an act or a rule should be assessed in terms of the value of its consequences. Non-consequentialism holds that whatever its consequences may be, an act or a rule should be judged by the value of something other than its consequences (for example, its kind or its motive). The principle of aggregation, or sum ranking, combined with welfarism asserts that the moral evaluation of an act or a rule in terms of the utility of different individuals depends on the sum of this utility. It needs several assumptions: for an individual, there is a unified measure of utility; utility is cardinal and interpersonally comparable. Utility aggregation appears to be a mere arithmetical rule, but it is a value judgment in that it eliminates plurality in the kind of goodness and separateness of individual utility.

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Economics, born in Britain, was influenced by utilitarian thought, which originated in Britain as well in the late seventeenth century; utilitarianism treated human well-being or happiness as the touchstone for economic policy and institutions. Those great economists who acknowledged themselves as utilitarians, such as Jeremy Bentham, James Mills, John Stuart Mill, William Jevons, Henry Sidgwick, and Francis Edgeworth, molded the British history of economics into a welfarist scheme. Of course, this is not a unique position in economics. In terms of some famous dichotomies in the definition of economics, catallactics (the science of exchange) of neoclassical economics is compared to plutology (the science of wealth) of classical economics (Hicks 1976); the scarcity definition is compared to the materialist definition (Robbins [1932] 1984), and the internalist, individualistic approach is compared to the externalist, holistic approach (Davis 2003). But the position of welfarist, scarcity-based, and individualistic economics is established. A powerful attraction of utilitarianism is that it provides a single criterion – happiness – for the practical value judgments of individuals and society. Yet that is also its fatal weakness. In other words, utilitarianism reduces all value judgments to that single factor and neglects all other factors. Contemporary welfare economics is not utilitarian but Paretian. The Pareto principle of optimality, developed by Vilfredo Pareto, is the most widely accepted criterion of economic efficiency. A social state is Paretooptimal when there is no alternative state in which at least one person is better off and no one is worse off in terms of their utility based on the given preferences of all people. This principle is a kind of welfarism and consequentialism, but it does not accept the aggregation of utility among people. An advantage of the Pareto principle is that it provides a way to evaluate social states that does not require interpersonal utility comparisons. But this principle cannot deal with ordinary cases where a change in a social state involves an increase in utility for some persons and a decrease in utility for others. In contrast, utilitarianism is a complete moral principle that provides a final judgment on the goodness of an act or an institution. Whatever interpretations are given to the notion of utility, a distinguishing feature of utilitarianism is the logic of maximizing the social aggregate. The social aggregate is defined by the sum total of individual utility, and the logic of maximization relies on the economic principle of efficiency. As resources are limited, the maximization of the social aggregate requires an efficient allocation of all relevant resources. As individuals have different faculties for producing and enjoying utility, more resources must be given to those who have higher utility-enjoyment faculties. To be correct, resources must

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be allocated so that the marginal utility of each individual from his last increment of resources is equal. Four major criticisms are leveled against utilitarianism in this context. First, utilitarianism takes into account only the maximization of an index such as utility or happiness. Indeed, it covers those nonutility concepts that are related to the right and virtue such as justice, liberty, rights, duty, and excellence, but does not admit the significance of these values for their own sake. These values are relevant to utilitarianism only if they are defined subordinately to utility so that they may contribute to maximization of the social aggregate in terms of utility. Thus, utilitarianism claims the supremacy of the good over the right and virtue. Second, in utilitarianism, the separateness of person – the basic value of individualism – is denied because although individuals are considered to be producers of utility, such utility is merged into a society’s pool to obtain the total utility of that society. Persons are dissolved into an entire society, so to speak. Therefore, utilitarianism does not regard distributive equality or inequality among individuals as a separate concern of moral valuation. What J.S. Mill called Bentham’s dictum, that is, ‘everybody to count for one, nobody for more than one’ (Mill [1861] 1969, p. 257), is sometimes cited as an egalitarian claim, but this interpretation is wrong.2 What Bentham referred to here is the mathematical rule that the same yardstick must be applied to everyone to sum up individual utility (Sidgwick [1874] 1907, p. 432). Third, utilitarianism regards all kinds of utility, whatever their source, as commensurable. According to Bentham, ‘prejudice apart, the game of push-pin is of equal value with the arts and sciences of music and poetry. If the game of push-pin furnish more pleasure, it is more valuable than either’ (Bentham [1825] 1843, p. 253). Contrary to mainstream hedonistic utilitarianism, there is a position of ideal utilitarianism that emphasizes the difference in the quality of good, as seen in the work of John Stuart Mill ([1861] 1969) and G.E. Moore (1903). But this is not consistent with the basic utilitarian idea of maximizing the social aggregate and should be interpreted as another moral principle, the ethics of perfection or excellence. Fourth, utilitarianism presupposes a unified evaluator of the utility aggregate and ignores the possibility of social decision-making among a number of individuals. It must assume implicitly the impartial spectator or the ideal observer in conflating the utility of different individuals and of different qualities into the social aggregate. In other words, it is assumed that the legislator has knowledge of a given end, knowledge of promoting the social aggregate of utility, and knowledge of human nature based on self-interest.

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Description and Prescription in Economics Now let us proceed to the roles played by welfarism in economics. In mainstream neoclassical economics, the system of descriptive or positive economics, composed of theories of consumption, production, and markets, assumes that an economic agent is a rational economic man or homo oeconomicus. This concept means that man behaves to maximize his utility. Utility representing consumer preference is not only the foundation of consumption theory, but also the ultimate foundation of market equilibrium. Given the amount of resources and technology, it is the preference of consumers that determines the quantities and prices of goods and factors of production and the allocation of resources as a whole. In this sense, a market economy is characterized by consumer sovereignty. What is utility? Early neoclassical economists, influenced by utilitarianism, regarded utility as pleasure or the satisfaction of wants in the state of consciousness. Then, because it was difficult to measure state of mind, an interpretation of utility as wants and preferences replaced the interpretation of utility as pleasure and satisfaction. It is empirically easier to see how strongly one desires certain goods and services than the level of satisfaction they provide. Prices give such a measure. Moreover, it is much easier to observe actual choices of agents than preferences for them. If one assumes that choice of agents is made to maximize utility, the result of that choice is the maximization of utility. Under this interpretation, utility is no longer a substantive entity. Despite changes in interpretation of the concept of utility, there is no change in the basic assumption that man maximizes his utility. What does this assumption mean? Neoclassical economics as descriptive theory is based on methodological individualism and reduces economic equilibrium to the motives and behaviors of individuals, individuals who are defined as rational economic men. It is meaningless to debate whether this assumption is realistic or not. It is adequate to make an instrumentalist interpretation of it. Instrumentalism is the view that theories are not descriptions but instruments for deriving useful results and are neither true nor false. It opposes realism. The assumption of a rational economic man is made not because it is realistic, but because it serves most effectively the purpose of deducing economic equilibrium as the order in the economic world and, consequently, the purpose of establishing economics as a science. Economic equilibrium is a state of rest in which objectives of individuals are maximized so that the force of adjustment by further exchanges in markets no longer works. The concept of utility is used as the objective to be maximized in all exercises of choice. In equilibrium, utility is maximized

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so that there is no movement to other states. In view of the instrumental nature of the utility concept, it is natural that it deviates from the entity and becomes a mere nominal form. Then, welfare economics, or normative economics, based on the Pareto principle, proceeds to explain the efficient organization of production and exchange under a given set of preferences; it addresses the problem of efficiency in terms of the maximization of an objective function expressed by individual utility. But such a transition from positive economics to normative economics is problematic. Normative economics accepts the assumption of a rational economic man and adopts the criterion that utility maximization is socially desirable. It is doubtful whether the transition from positive to normative economics under the same assumption is justified. Equilibrium, Utility, and Efficiency According to welfarism, whether a version of utilitarianism or the Pareto principle, a social state in which utility is maximized is said to be an efficient allocation of resources. Efficiency is defined in terms of individual utility as the ultimate end. However, is it reasonable to accept what people actually want not only as an explanation of facts but also as the desirable state of affairs? When the task is to design a social state or an institution from a normative viewpoint, it seems problematic to operate under the same assumption as used in positive economics. First, in welfare economics and social choice theory, the formulation of social welfare as a function of individual utility is regarded as individualistic or democratic. But the defect of this simple view is that individuals are conceptualized in terms of utility. Personal preferences may be unprincipled and despicable; they may be a result of resignation under the pressure of unfavorable circumstances. Utility is not qualified to be the basis of moral evaluation. Second, normative economics reverses the structure of positive economics and defines the utility presupposition of positive economics as the goal of social arrangements. Economists may maintain that economics accepts a goal as given and elucidates an efficient means to achieve that end. This is the view of instrumental rationality, but normative economics must involve the valuation of goals for two reasons: (1) because efficiency is a value and must be examined in light of its status in a system of values, and (2) because personal utility is not self-evident as the social end and its inclusion in normative economics will involve a special value judgment. The point of this critique of the transition from positive to normative economics does not lie in the so-called naturalistic fallacy, that is, the impossibility of deriving values from facts. The proposition of rational

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agents is not a description of facts but an instrumental means to isolate an economic domain by abstraction and to explain an equilibrium order by the autonomous logic of economics. The fallacy of normative economics is rather a facile application of the assumption justified in positive economics, which has a narrow task, to normative economics, which has a much broader task. Shifting from positive to normative economics means a change of objects from the economic world to the moral world, where a change in assumptions is required. Economists have refrained from dealing with distributive issues because they allege it involves value judgments. But while a conflict in distribution among individuals is commonplace, a conflict confronting economists on a theoretical level is due to a methodological inconsistency in that they continue to assume self-interest on the part of economic men in the discussion of distributive justice. Furthermore, the basic difficulty of welfarism is not so much the narrowness of the informational basis of normative judgments, which is limited to utility, as it is the assumption that an individual is a rational economic man. Insofar as the conception of man remains the same, the information required on his behavior and motivations also remains the same. Changes in the model of man will necessitate different information to develop a new model. We must examine the instrumentalist assumptions about man that are appropriate to moral theory. The informational basis of moral theory is driven by the nature of a moral theory, and the nature of a moral theory is crucially related to the conception of individuals. I argue that what matters about welfarism is not information but the conception of man, because I view the moral approach in terms of ‘being’ and ‘rules’ instead of ‘acts’ in accordance with changes in the subject matter from positive to normative economics.

2.2

ASPECTS OF INDIVIDUALS

Archimedean Point There is an important connection between the efficiency criterion and the conception of utility-oriented individuals. Unless the economic man is regulated or motivated by moral rules and institutions, the precept of efficiency will lead to notoriously inhumane outcomes. Only if it is guided by the constraints of morality can the concept of economic man be the basis of normative economics. It is well known that Amartya Sen called the individuals in economics ‘rational fools’ ([1977] 1982). We must establish an appropriate conception of man for normative theory.

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Even if the concept of utility is defined widely enough to be synonymous with happiness or well-being, it is not clear a priori or a posteriori that individuals are nothing more than utility seekers. Individuals act for reasons other than the pursuit of happiness; they have a sense of altruism, duty, chivalry, self-sacrifice, and public spirit, which are ordinarily distinguished from self-interest; that is, they desire social coexistence and prosperity. The view that all human behaviour is motivated by the desire for utility or happiness means a tautological definition. I advocate an examination of the conception of individuals not because the assumption of rational economic man is unrealistic or because we need a realistic investigation of human nature. In economics, the conception of the individual is instrumental in addressing the problems posed for solution. The connection between the efficiency criterion and the conception of utility-oriented individuals suggests that economics needs alternative conceptions of the individual to deal with value criteria other than efficiency. Naturally if one discusses issues of distributive justice assuming self-interest, the result will simply be a conflict between the participants in an economic activity; thus economists will assert the need for value judgments. In the field of normative theory including ethics, the need to assume the premises of deduction based on instrumentalist methodology has been hardly recognized; in fact, an explicit instrumentalist approach is seldom used. Nevertheless, since one cannot construct an argument without a premise, some premises must always be implicit. When assumptions are not made explicit, normative arguments will become entangled and confused. When Archimedes, the Greek mathematician and inventor in the third century BC, was asked how much weight he could lift with his mechanical invention, he reportedly replied: ‘If I were given a foothold and a fulcrum, I could raise the earth with a long enough lever.’ This story has been passed down as the ‘Archimedean point.’ In the present context, the Archimedean point for moving the economic and moral worlds will be fixed at the appropriate conception of individuals that accommodates economic and moral values. Individuals in Sidgwick’s Ethical System Among the moral philosophers who wrote classical works, the nineteenthcentury British utilitarian philosopher Henry Sidgwick practiced the most exact logical inference. It is useful to refer to his analysis when attempting to clarify a deeper basis for the conception of utility-oriented individuals. Moreover, his analytical framework of ethics, consisting of the three basic

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categories of moral language – (1) good, (2) right, and (3) virtue – is comparable to mine. According to Sidgwick, these categories apply to three aspects of human existence: (1) desire or feeling, (2) action or behaviour, and (3) entity or character. To each aspect he gave what he called the ultimate reasons or ends for acts: (1) happiness (‘an ultimately desired or desirable Feeling’), (2) duty (‘the kind of Action that we think ought to be done’), and (3) excellence (‘the ideal goal of the development of a human being, considered as a permanent entity’) (Sidgwick [1874] 1907, p. 78). The specification of three ultimate reasons was the result of the central aim of his ethical theory to make explicit the implied premises of common moral reasoning among people. To use my style of theory specification, that is, ‘basic value–object of valuation–ultimate end,’ Sidgwick’s system of ethics is represented by three paradigms: (1) ‘good–desire–happiness,’ (2) ‘right–action–duty,’ and (3) ‘virtue–entity–excellence.’ His ethics excludes social institutions from the objects of moral valuation because he treated them as the subject matter of political philosophy and simply applied a moral principle to them. His system is characterized by hedonistic utilitarianism, which emphasizes the priority of the ‘good–desire–happiness’ paradigm, and is strategically based on the definition of desire or feeling as a separate aspect of human existence. The other two paradigms – (2) action and (3) entity – are subordinate to (1) desire, and insofar as they contribute to the satisfaction of desire, they are judged as right and virtuous. This hierarchy clearly shows the way in which comprehensive utilitarian theory dominates all domains of moral valuation. At the same time, it reveals the structure of the understanding of individuals: that is, an individual is regarded as an entity that behaves in accordance with desires. Unique values of the aspects of behavior and entity other than desire are dismissed, because the double integrating function of utility eliminates all differences in the good between persons and all differences in the quality of the good. The violation of right (justice) and the neglect of virtue (excellence) constitute Achilles’ two heels of welfarism. In terms of Sidgwick’s terminology, the conception of utility-oriented individuals in economics relates to a limited aspect of human existence. It is neither a man in obedience to duty nor a man in pursuit of excellence. I do not accept the dominance of moral values by the ‘good–desire–happiness’ paradigm, but advocate the coordination of the three basic values ‘right– virtue–good’ and that of the corresponding three aspects of human existence. For this purpose, alternatives to the conception of individuals as utility producers are needed; this chapter is concerned with individuals for the ethics of the right, and the next chapter with individuals for the ethics of virtue.

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Moral Persons as a Stock Concept John Stuart Mill was not a genuine utilitarian. His emphasis on the difference in the quality of utility, in contrast to hedonistic utilitarianism, pointed out not only plural utility but also the difference in human existence and the importance of its improvement. What is most impressive in Mill’s moral theory is the concept of man. He attached significance to the plurality of individuals, the cultivation of moral faculties, efforts towards self-realization, the exertion of creative ability, the formation of noble character, and the like. What makes all of these possible is basically the liberty of individuals. Although the central idea of his moral theory was ‘man as a progressive being,’ Mill located this notion of man in the flow of utility by adding a momentous qualification: ‘I regard utility as the ultimate appeal on all ethical questions; but it must be utility in the largest sense, grounded on the permanent interests of man as a progressive being’ (Mill [1859] 1977, p. 224). Locating the concept of man in the paradigm of utility does not ensure a permanent individual identity and is readily soluble, as it were, in the water pool of the social aggregate. Criticism of the dual integrating function of the utility concept in terms of flow leads us to the view of man as stock (existence). John Rawls proposed the Kantian concept of ‘moral persons’ as a possible alternative. Although, as mentioned below, Rawls’s theory of justice is composed of several fundamental ideas, in the context of a critique of welfarism it is appropriate to begin with his conception of man. Rawls’s fundamental value premise is that of ‘free and equal moral persons’ (Rawls 1999a, p. 17), which is paired with ‘a well-ordered society’ (ibid., pp. 4–5) as another value premise. Moral persons are defined as having two moral powers: a conception of their good and a sense of justice. The basic structure of a well-ordered society satisfies the principles of justice, and therefore a fair system of cooperation among people is realized. Ideas of free and equal moral persons and a well-ordered society form the basic model of man and society. Moral persons have the capacity to form, to revise, and to pursue a conception of the good (in this sense, they are free), on the one hand, and the capacity to understand, to apply, and to act according to agreed-upon principles of justice (in this sense, they are equal), on the other. Since moral persons have two moral powers, they have ‘a right to equal respect and consideration’ (Rawls 1974, p. 634) in determining the principles for the basic institutions of their society to achieve a fair system of cooperation. Hence, the concept of moral persons is linked to a conception of traditional natural right. Just as welfarism is a grand paradigm, so is the theory

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of rights a rival paradigm called contractarianism with a long history. Bentham’s utilitarianism was developed as a challenge to what he called ambiguous natural law theory. For Rawls, the claim to natural rights is formulated on the explicit concepts of moral persons and a well-ordered society. 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 for 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. Therefore in a just society the liberties of equal citizenship are taken as settled; the rights secured by justice are not subject to political bargaining or to the calculus of social interests. (Rawls 1999a, pp. 3–4)

This is the central claim of contractarianism that the right has priority over the good. That moral persons in a well-ordered society regulated by the principles of justice have equal rights means that the principles of justice seek to protect and realize rights as the ultimate goal. Ronald Dworkin, who distinguished political theories as right-based theory, goal-based theory, and duty-based theory, interpreted Rawls’s theory as a right-based theory (Dworkin 1975, pp. 40–46). Rawls, who commented that this interpretation is narrow, prefers to call his theory conception-based or ideal-based, one including concepts like free and equal persons, a well-ordered society, a public role in the conception of justice, society as a fair system of cooperation, and the like (Rawls 1985, pp. 236–7). Rawls maintains that his theory is not based on a single idea such as right, goal, or duty, but consists of many fundamental intuitive ideas (in his later summary, seven) (Rawls 2001, pp. 1–38). In other words, it is a coherentist theory. But, as long as Dworkin’s classification does not mean epistemological foundationalism, a rhetorical accent can be placed on a single idea such as something fundamental or ultimate within a set of key concepts, as presented in Table 1.1. Rawls further defines moral persons’ two capacities for good and justice by distinguishing between the rational and the reasonable (Rawls 1993, pp. 48–54, 304–6; 2001, pp. 6–7, 81). To put it simply, this distinction parallels Kant’s differentiation between the hypothetical imperative and the categorical imperative. In this sense, Rawls’s conception of man represents Kantian moral persons and can be located at the interface of the two worlds: that is, the economic world in which the hypothetical imperative dominates and the moral world in which the categorical imperative regulates. Thus, at the basis of the antithesis ‘efficiency versus justice’ ordinarily appearing in the economic literature, one can find the antithesis of ultimate

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ends ‘utility versus rights.’ The latter is connected with the antithesis of the conception of the individual as ‘rational economic man versus moral person.’ All of these pairs are linked in a coherentist structure.

2.3

THE SOCIAL CONTRACT AND THE PRINCIPLES OF JUSTICE

The Model of Kantian Constructivism As one of the most influential achievements of contemporary moral and political philosophy, Rawls’s A Theory of Justice offers a systematic theory of justice through a challenge to utilitarianism. The focus of his criticism of utilitarianism is its neglect of the distinction among individuals as moral persons and its dissolution of the individual into the conflated social system of desires. His theory of justice reconstructs the traditional theory of the social contract and natural law on the basis of Kantian ethics. Today, it is almost impossible to debate on the problems of justice and even moral and political philosophy in general independently of Rawls.3 Rawls’s moral theory consists of three components within a coherentist structure: (A) basic theories, (B) moral principles, and (C) moral judgments. The social contract is concerned with the process of deriving (B) from (A). Since (A) includes fundamental Kantian premises, the process from (A) to (B) is called Kantian constructivism. The method of testing whether derived moral principles (B) accord with ordinary moral judgments of people (C) is termed reflective equilibrium. According to the degree of correspondence between (B) and (C), the initial premises (A) will be revised. Basic theories (A) includes three model conceptions: (a) moral persons, (b) a well-ordered society, and (c) the original position. The models (a) and (b) are the ideals of man and society respectively. The original position (c) is the mediating conception between (a) and (b). The original position is a device for translating the conditions of moral persons into the preconditions of the social contract, on the one hand, and for deducing the principles of justice that should prevail in a well-ordered society, on the other. Rawls’s unique idea is a hypothetical social contract delineating rules for the distribution of ‘primary goods’; the contract is held in the original position covered by the ‘veil of ignorance’ (Rawls 1999a, pp. 118–23; 2001, pp. 14–18). Three points about the original position are important. First, each person in the original position tries to advance his interests. The pursuit of the good in the original position represents the element of the ‘rational’ in moral persons. Second, the original position must be covered by the veil of

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ignorance in order to represent the element of the ‘reasonable’ in moral persons. Behind the veil of ignorance the parties do not know their particular features and circumstances and are confronted with the conditions for a fair agreement between free and equal persons. (No one in the original position knows one’s social status, income, race, nationality, sex, natural talents, intelligence, strengths and weaknesses, preferences, interests, goals, and so on.) Third, the object of the contract is the distribution of primary goods. Primary goods are those things that every rational man is presumed to want whatever a person’s rational plan of life. They are all-purpose means that are necessary to develop the capacities for the good and justice of moral persons, including basic rights and liberties, freedom of choice, opportunities, income and wealth, and the social bases of self-respect. Since the parties in the original position cannot weigh the various alternatives from their particular standpoints, they can make rational choices about primary goods from the fair point of view. In this model of the social contract, the rational and the reasonable that characterize moral persons in a well-ordered society are represented by the behavior of the parties in the original position. The parties in the social contract must not be confused with moral persons in a well-ordered society. Whereas moral persons have a conception of their good and are capable of a sense of justice, the parties in the contract are rational agents who only pursue their good. But the parties in the contract are provided with a sense of justice behind the veil of ignorance. Therefore, the social contract reached in the original position is not an agreement among self-interested persons. The behavior of persons in the hypothetical original position is constructed by a composite of the rational and the reasonable so as to represent the same choices made by moral persons. Rawls contends that the two principles of justice are agreed upon as a result of the social contract. Rational choice restricted by the veil of ignorance makes no allowance for self-interest. As a result, people agree to the rules by which they are content with their lot, whatever actually happens to them in society. In the sense that the principles of justice are determined by the fair terms of the contract, Rawls named this model ‘justice as fairness.’ The Two Principles of Justice Rawls’s two principles of justice are formulated as follows: First principle: Each person is to have an equal right to the most extensive total system of equal basic liberties compatible with a similar system of liberty for all.

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Second principle: Social and economic inequalities are to be arranged so that they are both: (a) to the greatest benefit of the least advantaged, consistent with the just saving principle, and (b) attached to offices and positions open to all under conditions of fair equality of opportunity. (Rawls 1999a, p. 266)

This formulation depends on the idea that a society consists of a political domain and a socio-economic domain. The first principle, concerned with the political domain, asserts that all are entitled to the basic liberties on an equal basis; the second principle, concerned with the socio-economic domain, stipulates the conditions under which social and economic inequalities can be justified. The first principle is called the principle of basic equal liberties, and the second principle consists of (a) the difference principle and (b) the principle of fair equality of opportunity. The first principle has priority over the second; in the second principle, fair equality of opportunity has priority over the difference principle. Fair equality of opportunity is different from formal equality of opportunity. In formal, or legal, equality of opportunity, economic and social achievements of individuals depend on their abilities and efforts, given the differences in their natural and social conditions. Fair equality of opportunity, in contrast, guarantees that persons of equal natural abilities and efforts will have roughly equal chances to prosper despite differences in income, inherited wealth, social status, and education. Inequality is generally caused, apart from chance, either by initial inequality of income and wealth, or by inequality in natural talents and their development. If these two factors have nothing to do with individual will and effort, they must be regarded as social and natural contingencies respectively. Formal equality of opportunity regards the two kinds of contingencies as legitimately accruing to individuals and is sustained by private ownership and meritocracy in free markets. Fair equality of opportunity eliminates the adverse effects of the first (social) contingency by preventing excessive property inheritance and securing equal educational opportunities, but does not deny the adverse effects of the second (natural). For Rawls, this is morally arbitrary because people are not responsible for their positive or negative genetic endowments. Rawls’s difference principle does not accept the effects of social and natural contingencies unconditionally. Some people are apparently handicapped by unfavorable social and natural circumstances; they are called the least advantaged or the worst off. The difference principle requires that inequalities must contribute to the benefit of the least advantaged, providing the moral basis of social security. In his definition of primary goods, Rawls includes an odd concept – the ‘social bases of self-respect.’ It is important to distinguish between

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self-respect as an attitude and the social institutions that help to support that attitude. His definition is this: ‘The social bases of self-respect are those aspects of basic institutions that are normally essential if citizens are to have a lively sense of their own worth as moral persons and to be able to realise their highest-order interests and advance their ends with self-confidence’ (Rawls 1982a, p. 166). It means that in a society regulated by the two principles of justice people have an equal sense of their worth as moral persons, and that for this purpose the institutional device of social security, in addition to political liberties and fair equality of opportunity, eliminates the risk and handicap that people are not responsible for. The concept of self-respect thus concludes the principles of justice, and leads to the discussion that will develop a just society to an excellent society, as argued in Chapter 3, section 3.6. Figure 2.1 shows how the principles of justice are applied. On the horizontal axis people are located from the least advantaged to the most advantaged according to the amount of primary goods they receive. The vertical axis shows how primary goods are distributed. First, basic rights and liberties including political liberty are equally distributed; second, fair equality of opportunity is assured for all; and third, the safety net, as the Primary goods

Economic goods (income, wealth) Social goods (position, power)

Social basis of self-respect ((a) of the 2nd principle)

Fair equality of opportunity ((b) of the 2nd principle)

Basic rights and liberties (the 1st principle) Least advantaged

Figure 2.1

Rawls’s theory of justice

Most advantaged

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social basis of self-respect, provided by social policy and social security is available to all. Ensuing inequalities in economic and social goods, which are mitigated by the application of the two principles, are permissible.

2.4

RAWLS’S TURN TO POLITICAL PHILOSOPHY

Rawls’s Transformation It is not my intention to give a full exposition of Rawls’s theory; it is sufficient to introduce his paradigm of the right and justice as a contribution to the interface of the economy and morality. More recently, however, he has transformed his theory. After publishing the first edition of A Theory of Justice (1971), Rawls made several efforts to redefine it, to change its emphasis, and to expand the issues for discussion. But after drafting an article entitled ‘Justice as fairness: political not metaphysical’ (1985), he substantially altered the nature of his theory of justice and attempted to reconstruct it in Political Liberalism (1993). His final concept appears in A Theory of Justice, revised edition (1999a) and Justice as Fairness: A Restatement (2001). According to Rawls after the reconstruction, although his Theory of Justice (1971) was a reformulation of the social contract theory to replace utilitarianism, it was unclear whether the book was a comprehensive moral philosophy or a more limited political philosophy. If anything, it provided an extensive moral doctrine. On the other hand, his theory was intended to approximate our considered convictions about justice and to reflect the basis of the institutions of a democratic society. However, there was a tension in his argument. Since democracy is characterized by profound differences in religious, philosophical, and moral beliefs as a permanent condition of human life, there is no guarantee that people of different persuasions will accept Rawls’s moral philosophy. Therefore, he has been compelled to explicitly presume reasonable pluralism in democracy, and to state that his work concerns political liberalism in the domain of political philosophy, and that his theory as a political conception of justice is consistent with value plurality. ‘Reasonable pluralism’ is different from ‘pluralism per se.’ Based on the distinction between the rational and the reasonable, reasonableness indicates not only that an argument is rational, but also that it is not selfrighteous and egocentric, taking into account its effects on others and a reciprocal relationship with others. Plurality in reasonable, comprehensible doctrines maintained by reasonable persons is reasonable pluralism. The issue of political liberalism is: ‘How is it possible that there may exist over time a stable and just society of free and equal citizens profoundly

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divided by reasonable though incompatible religious, philosophical, and moral doctrines?’ (Rawls 1993, p. xviii). His answer is that an ‘overlapping consensus’ amid deep and unresolvable differences provides a political conception of justice. A political conception of justice, Rawls argues, has three characteristic features. First, while it is a moral conception, it is adapted for political, social, and economic institutions that constitute the basic structure of democracy. Second, an acceptance of a political conception of justice does not involve a commitment to any particular religious, philosophical, or moral doctrine. Third, a political conception of justice is based only on certain fundamental ideas implicit in the political culture of a democratic society, such as society as a fair system of cooperation and free and equal persons (Rawls 1993, pp. 11–15). With his shift to political philosophy, Rawls now calls persons in a well-ordered society political citizens instead of moral persons. But, in fact, the concept of citizens still means free and equal persons with the moral powers of the good and a sense of justice, and Rawls has retained the model of his original position that represents these persons. Above all, he has made no change in the content of the two principles of justice. Rawls’s new, political conception of justice does not deny that his theory is a moral theory. Indeed, he distinguishes explicitly between general and comprehensive normative doctrine, on the one hand, and political philosophy keyed to specific democratic institutions, on the other, and characterized his theory as the latter. But the foundation of democracy is not morally neutral. If Rawls’s transformation emphasizes the limited applicability of his theory to the historical and cultural particularities of modern democracy, his theory will become political sociology or political anthropology rather than moral philosophy. Apparently his transformation resulted from his concern for the stability or feasibility of a moral conception of justice, but even a political conception of justice has not silenced his critics. Moral and Political Starting from the need to take seriously the pluralism of opposing moral and philosophical doctrines in a democratic society, Rawls withdrew his rejection of comprehensive doctrines other than his own and argued that his political theory would be endorsed by all comprehensive doctrines. Thus he proposed the distinction between moral theory and political theory. But has this method been successful? Rawls believes that it is politics that explains the coexistence of opposing thoughts and persons in society, but, as explained in Chapter 1, morality

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has that function. He assumes that since a political conception is narrower in scope than a moral one, it is possible to obtain consensus on a political conception as an overlapping part of different moral views. If consensus is gained, it is about political liberalism and not about politics per se. The requirement for consensus involves not the scope but the content of a theory. In contrast, morality aims to be a rule of society for the coexistence of its inhabitants and presupposes the ultimate establishment of consensus as a matter of course. In pursuit of such consensus, moral theories are competing and opposing each other. The same can be said about politics, too; competition and opposition among different political theories occur not only in politics per se, but also in political liberalism. Hence it is unreasonable to move from the moral to the political domain only because consensus is feasible. It is fully possible to explain overlapping consensus under pluralism in the moral domain as a search for moral liberalism. Insofar as the content of Rawls’s principles of justice remains the same, it can be argued that he has made a worthy contribution to the discussion of democracy by extending his analysis to the political domain in Political Liberalism. To understand the issue Rawls raises about moral versus political orientation, it will be helpful to examine his analysis from two angles: first, the place of the political domain in moral theory, and second, the methodology for justifying moral theory. The first viewpoint concerns the three categories of moral theory. Moral theory is so comprehensive that the objects of moral valuation cover ‘institutions, acts, and human existence.’ In accordance with these three objects, there are three different value languages: ‘right, good, and virtue.’ The approach that Rawls calls ‘political’ relates to a theory of right for democratic institutions. In this sense, his approach to justice can be considered political philosophy. But this does not mean that it ceases to be moral philosophy, because it also discusses the ethics of human acts and existence that are constrained by just institutions. For the valuation of acts, he developed a theory of primary goods, which is concerned with resources for moral persons or citizens; for the valuation of existence, he envisaged a theory of virtue (including political virtue) that conforms to a fair system of cooperation. Thus viewed, Rawls’s theories represent a comprehensive doctrine that is characterized by the priority of the right over good and virtue. Even though he redefined his theory of justice as a political conception, how can comprehensive utilitarians support it when they affirm the supremacy of the good over right? And how can comprehensive communitarians support it when they affirm the supremacy of virtue over right? Rawls cannot identify the possibility of an overlapping consensus anymore than referring to the general fact of democracy. Instead of defining Rawls’s theory of justice as

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a political conception that would be affirmed by an overlapping consensus amid opposing religious, philosophical, and moral doctrines, I propose the idea of a partitioning consensus on the division of labor among the categories of the ethical system: right, virtue, and good. It is the basic concept of this book that different schools of ethical thought should be coordinated so that they might be specialized in the different categories of morality. A consensus would be possible, but more feasible on partitioned moral categories rather than on overlapped ones. The Methodological Feature of Rawls’s Principles The second viewpoint on the relationship between the moral and political domains concerns methodology. Rawls’s pronouncement that justice as fairness is not a metaphysical but a political conception can be interpreted not only as a problem of the scope of its applicability but also of its justification, which really has to do with the stability of principles. Rawls’s methodology of justification encompasses reflective equilibrium, consisting of (A) basic theories, (B) moral principles, and (C) moral judgments. It justifies moral principles in terms of the coherent relationship between (A), (B), and (C) through multiple feedbacks between them. In contrast to a narrow reflective equilibrium, characteristic of a wide reflective equilibrium is that (A) and (C) are variable, not fixed; therefore they do not have the privilege of an epistemological foundation for the justification of (B). In equilibrium, each element of the three supports others and is supported by others. Reflective equilibrium is epistemological coherentism, not foundationalism. Rawls’s original conception of reflective equilibrium was limited to individual introspection. But since moral judgments of individuals are shaped within a specific institutional structure, the reflective equilibrium between (A), (B), and (C) must be regarded as consensus in the institutional context. His belief in the applicability of the theory of justice to democratic institutions after his political shift implies a modification of reflective equilibrium from individual introspection to social integration. With reference to reflective equilibrium, the meaning of the contention that justice as fairness is not a metaphysical but a political conception is that justification of (B) does not depend exclusively on (A) as a metaphysical argument but is supported by prevailing moral views (C) inherent in democratic institutions. In his political shift to accommodate value plurality, Rawls introduced two new concepts: overlapping consensus and public reason. Overlapping consensus is the acceptance of a political conception of justice by various standpoints in the political sphere. Public reason is the virtue that regulates public acts in the political domain.

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According to the coherentist method of reflective equilibrium, the value premises (A) apparently include universal and abstract ideas such as a well-ordered society and free and equal persons. But they represent the practical ideas (C) that are considered as inherent in a democratic society, and the principles of justice deduced from these premises are not justified by metaphysical or epistemological foundations. The value premises (A) are merely hypotheses with which to construct principles that will accommodate ordinary value judgments (C). Rawls’s political shift not only specifies the scope of the principles’ applicability but also excludes metaphysical foundations underlying a comprehensive doctrine. To bring Rawls’s methodological contention into sharp relief, I interpret his methodology of reflective equilibrium not only as coherentism but also as instrumentalism. Instrumentalism is the view that theories are not descriptions but instruments for deriving useful results (the role of theory) and are neither true nor false (the status of theory). Its basic idea is to avoid debate on the perennial issues of truth. In the article announcing Rawls’s shift to the political domain, there are four remarkable points that clearly indicate the instrumentalist view. The first and second points concern the roles of theory; the third and fourth points relate to the cognitive status of theory. First, because Rawls intends to avoid insoluble controversies, he omits philosophical, religious, metaphysical, and epistemological questions in his conception of justice as fairness. He calls this the ‘method of avoidance’ or the principle of toleration. As a result, reasonable pluralism is warranted. Second, by avoiding conflict in this way, the principles of justice can formulate the basic ideas embedded in the democratic institutions that permit conflicting beliefs and doctrines to coexist, without challenging their universal and comprehensive truths. These principles thus have the practical, political role of finding the basis for public consensus. The first point involves the role of omission and the second, the role of commission. Third, in Kantian constructivism, principles of justice based on public agreement do not assert cognitive status but present a ‘practicable conception of objectivity and justification.’ In other words, they are evaluated in terms of instrumentality to achieve public consensus on the democratic institutions. Fourth, assumptions (A) on man and society as the deductive basis of the principles are not descriptions of facts that can be tested for their truth or falsity. Rather, they are normative concepts that provide useful instruments to derive the principles of justice. In this interpretation of the principles of justice in terms of their role and status, it can be argued that Rawls’s constructivism is based on the methodology of instrumentalism. While nineteenth-century instrumentalism was

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a kind of positivism advocated by natural scientists Ernst Mach, Henri Poincaré, and Pierre Duhem, it was also developed by John Dewey in the form of pragmatism in the domains of social science, ethics, and philosophy. A.M.S. Piper gave the following definition of instrumentalism in moral theory: ‘By this [instrumentalism] I mean the view that a moral theory is rationally justified if the actions, life-plan, or set of social arrangements it prescribes can be shown to be the best means to the achievement of an agent’s final ends, whatever these may be’ (Piper 1986, p. 373). He called instrumentalism a strategy of moral justification. From our conception of morality as intersubjective norms for social coexistence, it follows that reflective equilibrium is no doubt the most powerful instrument or strategy for moral justification. In light of the two characteristics of instrumentalism – the instrumental roles and the noncognitive status of theory – Piper’s definition apparently stipulates the former but not the latter. But if we accept the noncognitivist position on moral theory, the claim of instrumentalism that theory is neither true nor false easily satisfies moral theory. In short, although Rawls’s political turn aimed at restricting his conception of justice as fairness to the political domain seems unsuccessful, it can be interpreted more meaningfully from the methodological viewpoint. Admitting that his methodology is, according to his explanation, a coherence theory in the form of reflective equilibrium, we can add to his Kantian constructivism an instrumentalist or pragmatic interpretation.

2.5

INSTITUTIONAL IMPLICATIONS OF THE PRINCIPLES OF JUSTICE

Rawls’s theory of justice has raised a wide range of problems; besides theoretical and methodological issues, its institutional implications are particularly significant. They relate to (1) an overlapping consensus, (2) social security as insurance, (3) the distribution of natural talents as a collective asset, and (4) property-owning democracy. An Overlapping Consensus In A Theory of Justice Rawls initially tried to formulate a conception of justice that would be acceptable to everyone. He did so by postulating that primary goods would offer the all-purpose means for advancing their wellbeing in spite of their different interests. Later he revised the definition of primary goods as what people need to realize the two powers of moral personality in terms of the capacity for a conception of the good and for a

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sense of justice (Rawls 1982a, p. 166). Accordingly, the scope of consensus expected for a conception of justice needed to be enlarged. A conception of justice is considered valid under the plurality of comprehensive religious, philosophical, and moral doctrines including a theory of good. In other words, it is to be accepted by all persons regardless of their doctrinal views, life plans, and preferences. Rawls sees justice as the result of an overlapping consensus among citizens in a democratic society. In the above, I made a comment on his view from the perspective of theoretical coordination of the moral categories, suggesting the rationale of a partitioning consensus. Here I am concerned with the institutional content of a derived consensus. With an overlapping consensus that leads to shared social rules there is a fundamental interest in social coexistence. The criteria for those rules are threefold: first, the rule must remain ‘pure background procedural justice’ (Rawls 2001, pp. 51, 54) to be applied to the basic structure of society, permitting people to pursue their plural values; second, it must preserve the sense of self-respect of all persons, with even the least advantaged considering their lives as worth living; and third, it must offer the prospect of rising status and income to those who possess talent and ambition. The first rule relates to a democratic political system, the second to a social security system, and the third to a capitalist economic system. Rawls emphasizes that an overlapping consensus under value plurality is characteristic of the political culture of a democratic society. However, his principles of justice relate to three (that is, political, social, and economic) dimensions and are not limited to a political system. We must delve into their substantive content from the perspective of social scientists, particularly economists. If we look at the structure of primary goods in terms of which justice as fairness is stipulated, it is clear that the institutional mix of ‘capitalism, democracy, and social security’ represents the content of Rawls’s principles of justice. That his principles of justice consist of the hierarchy of political, social, and economic primary goods, as shown in Figure 2.1, means that they provide the moral ranking of the three systems of capitalism, democracy, and social security. A historical model of the three systems can be explained as follows. The three systems of capitalism, democracy, and social security, which I call ‘the welfare state,’ are the accumulated results of developments in civil rights in the eighteenth century, in political rights in the nineteenth century, and in social rights in the twentieth century, as T.H. Marshall described in his theory of citizenship (Marshall [1950] 1964). He represented these systems by the tripartite notion of ‘Democratic-Welfare-Capitalism’ (Marshall [1972] 1981). Rawls’s principles of justice are intended to reconstruct, through moral theorizing, these systems, which have emerged historically and contingently.

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Historically, the democratic political system, except for the Greek type, emerged after the establishment of capitalism. Rawls’s first principle of justice offers a rule to govern the classical regime consisting of a capitalist market system and a democratic political system, where equality of opportunity is legally established by the guarantee of civil rights and meritocracy; the role of government as a night watchman is only to sustain competitive markets and to provide public goods. Rawls calls this system the ‘system of natural liberty’ (Rawls 1999a, p. 57). It soon became evident that capitalist markets generated two social maladies: inequality of distribution and unemployment. Moreover, the market failure, including environmental disruption, spread. Urged to cope with these evils, democratic governments engaged in the redistribution of income, macroeconomic control of demand, and supplementary resource allocation. Rawls’s second principle (a), the principle of fair equality of opportunity, calls for intervention in a free market economy from distributional and social perspectives. This ‘system of liberal equality’ (ibid.), requiring fair equality of opportunity, would provide people with equal starting points. The second principle (a), the difference principle, lays the foundation of the social security system, which Rawls calls the ‘system of democratic equality’ (ibid.). Thus the functions of government in a democratic society are the provision of public goods, the correction of market failures, the redistribution of income and wealth, the management of the aggregate demand, and social security. The institutional content of this policy mix is support of social security on the basis of the market mechanism and democratic government. Of the government functions, the provision of public goods and the correction of market failures are concerned with technical issues of efficient resource allocation through markets, not with ideological issues. Hence the redistribution of income and wealth, the management of aggregate demand, and social security require supplementary apparatus to cope with the two defects of capitalism (inequality and unemployment). In this way, capitalism has established a means to achieve ‘social stability and social justice’ (Keynes [1925] 1972, p. 306) to correct its major faults. This was Keynes’s basic ideological view of economic policy (Keynes 1936, p. 372). In a similar vein, James Meade provides a catalogue of social objectives shared by all reasonable citizens: ‘a decent standard of living, a decent distribution of income and wealth, individual liberty, individual security, individual participation in the making of decisions’ (Meade 1975, p. 13). Meade calls this catalogue the recommendations of ‘intelligent radicals,’ who place a higher relative value on liberty and equality than on efficiency. Rawls’s moral and political conceptions

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apply to the perspectives of social scientists T.H. Marshall, Keynes, and Meade. Social Security as Insurance Regard for the least advantaged individuals is the core of a social security system. Such people face a variety of risks and uncertainties such as disease, handicaps, poverty, unemployment, homelessness, old age, and long-term care; and many of them actually suffer from distress and misfortune. When these phenomena are caused by social and natural arbitrariness that is beyond individual control, the principles of justice for a fair system of social cooperation require that insurance should cope with social risks and uncertainties. The term ‘insurance’ has two meanings: the first is the objective to protect against risk; the second is the device of the insurance contract. The principles of justice invoke both the objective and the device of insurance. According to the insurance mechanism, suppose the insured pays a premium p to avoid the probability  of incurring a loss Z. If p  Z, a contract is settled. As a choice among social rules, behind a veil of ignorance in the original position, people will guard against the worst possibilities by agreeing to prepare a cooperative defense against them. Since they do not know their own risk identity, they will agree to contribute an average rate of insurance premium based on the law of large numbers rather than a particular rate that is calculated according to their own risk identity. Social insurance is designed to pool risks, in which all people are insured and generally pay a flat premium for flat insurance. Those who actually encounter risks and are in the worst position are compensated by the device of insurance and keep their self-respect. Those who luckily escape risks enjoy the benefit of security as well as a favorable social or economic position and contribute financially to social insurance arrangements. As a result, there is a transfer from the advantaged to the least advantaged, but this does not mean that the advantaged bear the burden and the disadvantaged enjoy the benefit. As the insurance contract indicates, all bear the burden and all enjoy the benefit. From the viewpoint of the original position, the position of the most favored in actual life can be interpreted as obtained in exchange for their contribution to the least favored on a reciprocal basis. Rawls’s principles of justice based on the social contract are essentially a theory of insurance. A social security system is neither charity nor coercion; it is reciprocity. From this standpoint, whether a contribution to a social security system is a tax or a premium does not matter. It is a false, though popular, view that a social premium is a bilateral exchange between burden and benefit and that a tax is a compulsory unilateral transfer of burden.

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The Distribution of Natural Talents as a Collective Asset Then, what risks should be covered by the social security method? Measures for fair equality of opportunity do not exclude all the consequences of social and natural contingencies that are likely to happen under formal equality of opportunity. Inequality of physical assets and income is reduced by income and inheritance taxes. But inequality of human capital is lessened only to some extent by an educational system to provide equal opportunities. The difference principle, taking a further step toward equality, tries to adjust inequalities in natural talents due to natural contingencies by the device of social insurance. The difference principle states that the advantaged by nature may gain from favorable economic and social positions only if they improve the situation of the worst off. Although the ordinary objects of social security are the stresses of life due to disease, handicaps, poverty, unemployment, old age, and so on, unequal distribution of natural endowments is at the root of these phenomena. The difference principle pays attention to the deeper basis of inequality and risks in society. The core of the difference principle is that since the distribution of natural endowments is accidental rather than morally admissible data, it should be the object of social control. Rawls remarks that ‘the difference principle represents an agreement to regard the distribution of native endowments as a common asset and to share in the benefits of this distribution whatever it turns out to be’ (Rawls 2001, p. 75). He carefully explains the essence of this thesis: it does not argue that people regard native endowments per se as a common asset, but that people agree to regard the distribution of native endowments as a common asset. The thesis of a common asset intends neither to penalize the more able for being better endowed nor to repudiate their good fortune. Rather, they are encouraged to enhance their abilities for the benefit of the less endowed. This thesis stems from the notion of social security as a system of insurance, in which contributions from all members are transferred to the least advantaged. The parties in the original position, as the representatives of free and equal persons, have agreed to this system of insurance. The thesis of a common asset represents the other side of the thesis of stochastic risk-pooling on the fair assumption of a veil of ignorance. Property-owning Democracy I have argued that as seen from the correspondence between the structure of the two principles of justice (on the value dimension) and economic, social, and political structures (on the institutional dimension), the essence

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of Rawls’s theory of justice lies in its claim of the difference principle as an addition to civil rights and fair equality of opportunity (that is, the claim of the system of democratic equality rather than that of natural liberty and of liberal equality) and in the moral theoretic formulation of the welfare state consisting of capitalism, democracy, and social security. However, he observes that his theory does not support a ‘capitalist welfare state’ but a ‘property-owning democracy’ (Rawls 2001, pp. 135–8), which is advocated by Meade (1964). To clarify this point, Meade and Rawls define a ‘capitalist welfare state’ as a regime that, given the unequal distribution of physical and human capital, redistributes income ex post through tax and transfer payments to reduce the unequal distribution of income. For them, a social minimum covering only essential human needs is fulfilled in this regime. In contrast, a ‘property-owning democracy’ eliminates as much as possible the concentration of economic and political powers and inequality of income and wealth as a whole by dispersing the ownership of wealth and capital and by equalizing the opportunity of investment in human capital ex ante. Specifically, this regime requires progressive taxes on income and inheritance, an egalitarian educational system, a system for saving, and public funding of elections. For Rawls, the principles of justice as fairness is realized in a ‘property-owning democracy.’ If the contrast between a ‘capitalist welfare state’ and a ‘propertyowning democracy’ is understood, it is clear that Rawls’s theory is incompatible with the former (Krouse and McPherson 1988). Although the term ‘property-owning democracy’ is not popular, it refers to the regime that controls ownership by democratic institutions on the presupposition of capitalism based on private ownership. Since I have defined the ‘welfare state’ as consisting of capitalism, democracy, and social security and understood Rawls’s two principles of justice as consisting of ‘equal liberties, fair equality of opportunity, and the difference principle’ in correspondence with the tripartite institutions of the welfare system, it follows that the institutions that realize his principles embody the welfare state that I have defined. The foregoing discussion on the institutional implications of the principles of justice has indicated that (1) the overlapping consensus underlying these principles gives an interpretation of the historical developments of economic, political, and social structures in the past three centuries, (2) social security against risks takes the form of social insurance as a method of reciprocity, (3) the scope of risks to be covered is not defined by phenomena such as disease, poverty, unemployment, and so on, but is based on the deeper fact of the unequal distribution of natural endowments, and (4) the institution of social security thus defined in terms of

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method and scope is located in the welfare state consisting of capitalism, democracy, and social security based on Rawls’s two principles of justice. To harmonize the welfare state with the principles of justice two points are important. First, as the prerequisite for the ‘social bases of self-respect,’ the two claims of ‘equal basic liberties’ and ‘fair equality of opportunity’ should be satisfied in order to reduce unequal distribution of physical and human capital by means of a wide range of democratic institutions and public policies. Second, social security as the core of the social bases of self-respect should be transformed from a negative, ex post safety net to a positive, ex ante springboard based on the notion of ‘positive welfare.’ Positive welfare will require cooperation with labor, educational, and cultural policies. The function of the welfare state is not limited to the relief of the worst off, but is fulfilled only by cooperation with the institutions of capitalism and democracy in the ways formulated by the principles of justice as fairness. Whereas the relationship between Rawls’s principles of justice and ‘property-owning democracy’ is clarified, the moral bases of a ‘capitalist welfare state’ that he criticizes are unclear. In fact, at the root of the notion of a capitalist welfare state that assures minimum social needs by redistribution of income there are different moral theories including utilitarianism, libertarianism, and the like. We will investigate what combination these theories assign to the three systems of capitalism, democracy, and social security in Chapter 6, section 6.3.

2.6

WHAT IS MORAL EQUALITY?

Justice as Violence Rawls’s theory of justice has revived the tradition of the social contract theory and succeeded in constructing a new egalitarian paradigm. It has caused far-reaching repercussions in moral and political philosophy; it has drawn varied responses within and without the paradigm. Outside the egalitarian paradigm, two dominant positions have emerged against Rawls: libertarianism and communitarianism, which we deal with in the next chapter. Here we are concerned with the developments within the egalitarian paradigm. The problem is what equality means if it is to have priority over other notions (Sen [1980] 1982). Rawls’s principles of justice determine the basic structure of social institutions, under which people are allowed to pursue their own good or ends. As the difference principle indicates, markets are admitted to play a role within the framework of the tripartite security of the basic liberties, fair equality of opportunity, and a social safety net, and a resultant disparity in

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income and wealth is morally justified. This is what the priority of right over good means. However, the priority of right does not mean that the good is not important. The good is really important for human beings, who cannot live with right and justice alone. The right and the good are complementary. Moreover, justice is a kind of violence in that it regards human beings as equal with respect to some dimension, although they are basically heterogeneous. All criticisms of egalitarianism share this view. The violence of justice is perhaps inevitable if a just society is to be realized. The problem, then, is on what dimension equality should be defined. Different moral theories focus on different dimensions in comparing different people. Let us now examine the claims of utilitarianism and contractarianism. Utilitarianism attaches importance to the world of the good, which is the goal of human conduct. But it commits the fatal mistake of erasing personal identity and depriving people of individual rights because it settles the problems of justice according to the aggregate good. The adage of utilitarianism, then, is the maximization of the aggregate good, and the necessary condition for maximization is the equality of marginal utility generated from the income of each person, assuming that utility is a function of income. Utilitarian distributive justice amounts to the equality of marginal utility, which means the equal marginal contribution of each individual to the social aggregate of utility. Insofar as there are differences of utility functions among people, the equality of marginal utility prescribes the allotment of a smaller income to persons with a lower capacity for the enjoyment of utility. Sometimes Bentham’s formula ‘everybody to count for one, nobody for more than one’ is interpreted as an egalitarian claim that equal weights are to be given to everyone’s utility, but what he is actually saying is that the same yardstick is to be applied to everyone. This simple mathematical rule of evaluation integrates the individuals into the social whole. There is no serious substantive norm for equality in utilitarianism, because the maximization of the sum total of individual utility is viewed as the highest norm and the consistency of distribution with maximization is regarded by implication as just. In contrast, contractarianism holds that although some conditions of equality must be explicitly established for the sake of justice, the violence of justice must not intrude into the world of the good. Thus, using the concept of primary goods, Rawls remains on the dimension of instrumental goods that are necessary to exercise the two moral powers for a conception of the good and a sense of justice. The hierarchical structure of tripartite primary goods is a bulwark for the social coexistence of plural good and constructs the priority of right as a prerequisite of the good. Nevertheless, Rawls’s criterion of equality is not equal distribution of all primary goods. Whereas basic liberties, opportunities, and a safety net

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should be distributed equally, those social and economic inequalities justified by the difference principle do exist. For Rawls, the focal point of equality is neither goods nor utility; instead, it is found in the conception of ‘free and equal moral persons’ or ‘equal self-respect;’ in other words, people should be treated equally as moral persons. I call this criterion ‘moral equality.’ Between utility and commodities we can conceive a dimension for the evaluation of living, in which people reflectively evaluate the worth of engaging in social cooperation. Rawls introduces the concept, a ‘rational plan of life’ (1999a, pp. 358–9), as an intermediary between a theory of justice and a theory of good. A rational plan of life is compared with an extended utility function in which primary goods shape human capabilities and through the expansion of capabilities contribute to happiness. Moral persons with the two powers of justice and good experience human flourishing based on a rational plan of life. ‘Moral equality’ might be expressed as the equality of ‘moral worth.’ Between Commodities and Utility Accepting the egalitarian framework, Amartya Sen criticizes both the utility approach and the commodity approach to morality and advocates instead the capability approach (Sen 1985a). He locates the concept of ‘human functionings’ between goods and utility and insists that ‘our capability to achieve valuable functionings that make up our lives’ (Sen 1992, p. xi) should be the focal variable of the equality approach. On the one hand, he criticizes the utility approach for neglecting non-utility factors (liberty, justice, rights, and so on) that determine the well-being of individuals and for disregarding adaptive preferences that victims of discrimination and distress must live with, thus lowering their standard of happiness. On the other hand, in his criticism of the commodity approach, Sen maintains that equality of commodities does not always assure equality of wellbeing because the effects of commodities on human functionings differ according to capabilities and lifestyles. Sen charges that Rawls is fettered by fetishism due to a preoccupation with primary goods while having discarded welfarism. To this critique, Rawls rejoins that since primary goods are the all-purpose means that enable citizens to develop and exercise basic capabilities in terms of the two moral powers of good and justice, they take into account capabilities and functionings (Rawls 2001, pp. 168–76). Of the two kinds of plurality in the good, pointed out in Chapter 1, section 1.6, Rawls criticized utilitarianism for neglecting the ‘separateness of persons’ in the calculation of the sum total of individual utility, but did not discuss the matter in terms of utility-generating faculties and lifestyles. Furthermore, with regard to the ‘difference of quality’ of the good, he was

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so concerned about the concepts of liberty, justice, and rights which had been overwhelmed by the utilitarian concept of good, that he even opposed the perfectionism that had to do with the quality of the good because it was teleology. In short, Rawls focused on the distribution of primary goods to regulate the world of the good by the principles of justice; he rejected both utilitarianism and perfectionism, which would otherwise evoke the dominance of the good. Two kinds of plurality in the good should be analyzed beyond the scope of primary goods. To consider what moral equality means, the concepts of ‘free and equal moral person’ and ‘self-respect’ deserve further investigation before identifying an index of equality such as income, utility, capability, and so on. The paradigm of contractarianism rests on the ‘capacity for moral persons’ as a standard of equality. On that basis it claims ‘a right to equal respect and consideration’; when this right is guaranteed, ‘self-respect’ is achieved. Is this statement correct? Indeed, the right to have such a capacity is a prerequisite of self-respect, but the right itself does not guarantee the achievement of self-respect. Only if persons undergo a self-evaluation of whether they deserve respect and consideration from others, will self-respect be obtained. For persons to pass the self-evaluation test, something must be accomplished by the development and exertion of their capabilities. The concept of ‘achievement’ is sometimes lacking in a theory of rights; it should be located along with the concept of capability between commodities and utility. To examine this issue we need to consider duty versus rights, or excellence versus justice. Nevertheless, Rawls’s theory of justice has contributed a significant insight into the area between the good and the right, or between commodity and utility. His difference principle, with its focus on the least advantaged, addresses the handicaps that are caused by the lack of natural talents and seeks the achievement of self-respect for all persons. He also envisages the evaluation and planning of well-being as a whole by using the concept of a ‘rational plan of life.’ Hence, an investigation into the area between the good and the right, or between commodity and utility will enrich the egalitarian paradigm and give an important clue to the ethics of virtue in human existence. Thus in the next chapter, we will turn from the theory of justice to the theory of virtue.

NOTES 1. For the best methodological literature on the autonomy of the economic domain and economics, see Schumpeter (1908). For the discussion of his book, see Shionoya (1997, chs 5 and 6).

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2. This phrase has not been found in any of Bentham’s writings (Crisp 1998, p. 149), but he frequently expressed the same idea. For example, Gerald Postema (1998, p. 154) quotes Bentham’s phrase that the ‘impartial arbiter’ or ‘legislator’ must have ‘exactly the same regard for the happiness of every member of the community in question as for that of every other’ (Bentham [1822] 1989, p. 235). 3. There is an enormous literature on Rawls, but here three systematic anthologies are cited: Richardson and Weithman (1999), Kukathas (2003), and Freeman (2003).

3. 3.1

Liberty and excellence THE PHILOSOPHICAL FOUNDATIONS OF LIBERTY

Liberty and Persons This chapter will examine the relationship between liberty and excellence, that is, the second theoretical issue at the interface of economics and ethics. We will start by focusing on two concepts: liberty and persons. In Chapter 2 we were concerned with the relationship between efficiency and justice at the interface of economics and ethics. In that discussion, liberty or freedom was assumed to be an indispensable premise of both efficiency and justice. In the analysis of efficiency, the freedom of choice was a premise of a rational economic man who maximizes his utility; in the discussion of justice, equal basic liberties were a premise of moral persons who have the capacity for the conception of good and a sense of justice. Rather than a separate premise for the behavior of the rational economic man and moral person, liberty or freedom can be considered a condition that is included in the definition of man as such. Although freedom in the analysis of efficiency, on the one hand, and liberty in the analysis of justice, on the other, are different in scope and content, the method of locating the concept of liberty as the presupposition of other concepts may work as a neutralizing device to dissolve the concept of liberty or freedom into other concepts and avoid conflicting interpretations of liberty or freedom.1 Furthermore, it will be remembered that in Chapter 1, section 1.2, the concept of liberty did not appear in the formulation of my system of ethics because liberty always plays a crucial role in all three ethical approaches (good, right, and virtue) described. Since different ethical approaches assign different meanings to the concept of liberty, liberty as such is not a distinguishing characteristic of any ethical theory. In formulating different ethical approaches, it was appropriate to eliminate the concept of liberty. But this does not alter the diverse definitions and interpretations that are characteristic of liberty, much less settle the substantive questions concerning its moral values. As there is no society without constraints, it is meaningless to talk about a free society or free individuals without stipulating the scope 81

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and content of freedom and the context of their discussion. Isaiah Berlin’s argument on liberty, perhaps the most often debated thesis on liberty after World War II, asserted that the protean concept of liberty with more than 200 meanings has at least two distinct conceptions and two distinct corresponding directions of thought (Berlin [1958] 1969). We now have to address the concept of liberty. In considering liberty, we seek to combine it with another concept that also remains to be examined in this context, namely, persons. We have seen that, whereas utilitarianism asserts the priority of the good over the right, contractarianism maintains the opposite (that is, the priority of the right over the good), and that the crucial point of this contrast lies in the different conceptions of persons in the two systems of thought. At the root of the family of concepts including the good, utility, and efficiency, there is a specific conception of persons who pursue the satisfaction of desires on the basis of freedom. For the theoretical construction of welfarism, it is sufficient to regard the feelings and consciousness of human beings as a flow concept rather than the existence of human beings as a stock concept that persists and progresses over time. Insofar as the good is defined in terms of utility, efficiency can be defined simply as the maximization of utility. The agent who is instrumental in the construction of this theory is no more than an isolated rational economic man with a definite system of desires. Once the flow of feelings and consciousness is identified as the focal dimension of the good, a person seen as a stock withers and loses substance. Thorstein Veblen once described the concept of man in mainstream economics as follows: ‘The hedonistic conception of man is that of a lightning calculator of pleasures and pains, who oscillates like a homogeneous globule of desire of happiness under the impulse of stimuli that shift him about the area, but leave him intact. He has neither antecedent nor consequent’ (Veblen [1898] 1919, p. 73). This is a famous satire directed at neoclassical economics. The last sentence in the quotation is suggestive. Following this statement, Veblen, an institutional economist, proposed an alternative conception of man for a different type of economics: He is not simply a bundle of desires, that are to be saturated by being placed in the path of the forces of the environment, but rather a coherent structure of propensities and habits which seeks realization and expression in an unfolding activity . . . These circumstances of temperament . . . are elements of the existing frame of mind of the agent, and are the outcome of his antecedents and his life up to the point at which he stands. They are the products of his hereditary traits and his past experience, cumulatively wrought out under a given body of traditions, conventionalities, and material circumstances; and they afford the point of departure for the next step in the process. (Veblen [1898] 1919, p. 74)

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This is a significant conception of the individual as stock, one who is molded by the accumulation of the previous cultures and who persists in time and changes as he looks into the future. On the other hand, contractarianism needs to perceive moral persons as different from one another in order to develop the ideas of right, justice, and rights. Although moral persons seem to have a sense of justice in addition to a capacity for good, they must go through life maintaining their selfidentity, participating in social cooperation, and shaping and revising their aims, preferences, and plans. Such people are no longer mere containers of utility, but autonomous entities with a past history and future prospects; they are the ends, not just the means. In the contractarian paradigm they are called ‘Kantian moral persons.’ My interpretation of moral persons as the stock concept rests on Rawls’s emphasis that ‘moral personality is here defined as a potentiality that is ordinarily realized in due course’ (Rawls 1999a, p. 442). It is the potential capacity for moral personality that characterizes moral persons. Potentiality must reside in the stock and persist over time. Now, the contrast between the flow and stock conceptions of the individual suffices for the first approximation of the contrast between welfarism and contractarianism. If we look closely at the contractarian concept of moral persons, however, it is clear that there is almost no specification of moral persons. It is stressed that they are not amenable to assimilation like ameba. The distinction between different persons is emphasized only for their exterior; the interior of moral persons is not specified. This defect is understandable because the contractarian theory is concerned only with the moral valuation of social institutions; it does not address the internal features of moral persons as a separate object of moral valuation. As this text has observed repeatedly, Rawls characterized moral persons by their capacities for the good and for justice. To reach the real basis of personality, we must look directly at the stock aspect of human beings as a separate subject of moral theory. In light of my system of ethics, an analysis of moral persons as stock will be developed by the ethics of virtue. In addition to the contemporary dichotomy in moral theory such as right versus good, efficiency versus justice, and utilitarianism versus contractarianism, the ethics of virtue is introduced as the third paradigm. I regard communitarianism as a version of virtue ethics in political philosophy. In this way I am able to place the concepts of liberty and persons, only touched on above, as the essential elements of the ethics of virtue. This chapter seeks the philosophical foundations of liberty in the internalized conception of persons. Two schools of thought – libertarianism and communitarianism, which have emerged as critiques of

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contractarianism – will be evaluated in this light. Let us begin with Berlin’s argument on the two concepts of liberty. Interpretations of Negative and Positive Liberty Berlin’s celebrated distinction between two conceptions of liberty has in fact involved complex puzzles combined with profound erudition and engendered various interpretations.2 The popular interpretation is that negative liberty is the absence of impediments to the opportunity for choice and action, whereas positive liberty is the assurance of the ability, power, or condition to use that opportunity. This distinction is generally considered to correspond to the distinction between the notions of liberty of conservatives (negative) and liberals (positive). Berlin’s definition is more sophisticated. According to him, negative liberty answers the question, ‘How much am I governed?’ or alternatively, ‘Over what area am I master?’ It means that an individual is free if others do not prevent him from having an opportunity for doing or being in a certain area of life. Negative liberty is the absence of coercion or interference. In contrast, Berlin contended, positive liberty answers the question, ‘By whom am I governed?’ or alternatively, ‘Who is master?’ If one is his own master in the choice of lifestyle and decisions, he is free in the positive sense of liberty. Positive liberty is self-governance. Whereas negative liberty relates to the ‘extent of liberty,’ positive liberty is concerned with the ‘source of liberty.’ Alternatively, whereas negative liberty relates to the ‘extent of interference,’ positive liberty is concerned with the ‘source of interference.’ Thus the two senses of liberty are distinguished by two criteria, not by one. That one is free to do in a certain area without interference from others (negative liberty) might appear to be the same as being one’s own master in choosing to act in a certain area (positive liberty). But this is not so. Even under political authoritarianism or paternalism, it is possible that individuals might be allowed a wide range of negative liberty in the choice of act. In a democracy, on the other hand, it is possible that a tyranny of the majority might deprive individuals of the positive liberty of doing and being in life. Berlin’s argument amounts to an assertion that the problem of liberty is neither a dichotomy nor a choice between the two concepts, but rather involves at least two dimensions or coordinates. What, then, are these coordinates? With respect to moral and political philosophy, we can say that negative liberty corresponds to the idea of liberty in the neo-liberalism or libertarianism advocated by Friedrich von Hayek and Robert Nozick. Positive liberty, however, can encompass at least three quite different doctrines, as a survey by David Miller indicates

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(Miller 1991, p. 10). The first is liberty as the power or capacity to act in certain ways, claiming the necessary means for enlarging opportunity and self-realization, in contrast to the mere absence of interference. Although Miller does not name it, I call this ‘welfare liberty.’ The second is liberty as collective self-determination through democratic institutions, in which people participate in the formulation and implementation of social rules. Miller calls this ‘republican liberty.’ The third doctrine is liberty as rational self-direction to control oneself on the basis of rational desires as opposed to given desires. Miller calls this ‘idealist liberty.’ Apart from the appropriateness of these terms, it is important to specify the content of positive liberty and analyze it according to meaningful, distinctive approaches. Given the three doctrines on positive liberty, we can say that the first two notions of positive liberty revise the scope of negative liberty in the ‘private sphere’ through political activities in the ‘public sphere.’ ‘Welfare liberty’ and ‘republican liberty’ are concerned with substantive aims and procedures of activities in the ‘public sphere’ respectively. We can combine and call them ‘democratic liberty,’ in contrast with the third liberty, ‘idealist liberty,’ allocated to the ‘private sphere,’ which is now better called ‘perfectionist liberty.’ Later we will define the ‘public sphere’ as the space where people publicly discuss and determine issues of policy and institutions (see Chapter 5, section 5.1). To illuminate the two coordinates implicit in Berlin’s argument, let us focus, for the time being, on ‘democratic liberty’ as the representative of positive liberty and replace negative and positive liberty legitimately with liberalism and democracy respectively. Independently of Berlin, Hayek differentiated between liberalism and democracy by referring to the view widely shared by political philosophers in the 1930s (Hayek 1960, p. 103). Hayek (ibid., pp. 442–3), for example, cited J. Ortega y Gasset: Democracy and Liberalism are two answers to two completely different questions. Democracy answers this question – ‘Who ought to exercise the public power?’ The answer it gives is – the exercise of public power belongs to the citizens as a body . . . Liberalism, on the other hand, answers this other question – ‘regardless of who exercises the public power, what should its limits be?’ The answer it gives – ‘Whether the public power is exercised by an autocrat or by the people, it cannot be absolute: the individual has rights which are over and above any interference by the State’. (Ortega y Gasset 1937, p. 125)

In a similar vein, Franz Schnabel argued that whereas democracy speaks about the ‘holder of state sovereignty,’ liberalism speaks about the ‘extent of the state activity’ (Schnabel 1933, p. 98). Although this explanation addresses the extent and source of ‘state power’ or ‘interference,’ it is reduced to the extent and source of ‘liberty’ if we reverse the criterion from

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Source of power (or liberty)

Values

Liberalism and democracy Extent of power (or liberty)

Democracy (positive liberty) Authoritarianism

Liberalism (negative liberty)

Totalitarianism

A C

B D

power to liberty; it merely restates Berlin’s argument in terms of negative and positive liberty. Given Hayek’s contrast between liberalism and totaritarianism, on the one hand, and between democracy and authoritarianism, on the other, two coordinates of the extent and source of power or liberty are depicted in Table 3.1 to assist in our analysis of political structure. In Table 3.1, liberalism (negative liberty) is located at the lowest extreme on the extent of power coordinate, but is compatible with authoritarianism (C) at the highest extreme on the source of power coordinate. Democracy (positive liberty) is compatible with totalitarianism (B) at the highest extreme on the extent of power coordinate. Of course, compatibility of negative and positive liberty is theoretically possible at (A), but problematic for the following reason. Though negative liberty is primarily opposed to despotism (totalitarianism and authoritarianism) and defends laissez-faire freedom, it is liable to generate the great social evils of laissez-faire, including economic and social inequalities. In contrast, though positive liberty objects to laissez-faire and tries to cope with its evils, it often fails to avoid the dangers of totalitarian intervention. Thus, the two concepts of liberty are mutually antagonistic in framing institutional arrangements, but the two coordinates of the scope and source of liberty (or power) underlying Berlin’s distinction between two concepts of liberty are indispensable viewpoints, not alternative objects of choice. Although he did not ignore the intrinsic defects of both concepts of liberty, he eventually defended negative liberty because historically, he contended, the claims of positive liberty have been much more destructive through perversion into despotism. John Gray called Berlin’s thesis on liberty ‘agonistic liberalism’ (Gray 1995). Berlin maintained that a balance between the two concepts of liberty is necessary but there is no compromising principle. Therefore, for him, the choice between the two is basically a choice of a way of life. It is important to notice that his attitude toward liberty was linked to another cherished theme of his, value pluralism. He ranked negative liberty in parallel with other ultimate values such as justice, happiness, love, self-realization, truth,

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and so forth, among which there are conflicts. Berlin’s argument of liberty based on the tolerance of plural values seems to leave their coordination not to reason but to actual forces in the world. This sounds too skeptical about the role of reason in moral theory. Two Concepts of the Self Nevertheless, Berlin’s argument is worthy of our attention because it is based on the ontological theory of the self. To develop the main thesis of this chapter, we begin with a question regarding positive liberty, ‘By whom am I governed?’ Naturally, the answer will be that one does not want to be governed by other persons but to be one’s own master. Berlin observed that the notion of self-mastery or self-determination generates a metaphysical idea of two selves: the dominant self and the subordinate self. The former is a rational, real, ideal, and autonomous self; the latter is an irrational, heteronomous, and empirical self that is a slave of instinct, emotion, institutions, and customs. Self-mastery means control of the subordinate self by the dominant self. The point is not that the higher self controls the lower one, but that the lower self is disciplined to rise to the higher self because the higher self is only an ideal and the lower one is the reality. Positive liberty is a choice of the true self by the transformation of the empirical self. Man is free in the positive sense only if he acts in accordance with some rational goal. This idea conforms to Kant’s theory of practical reason and ethics. In his analysis of the relationship between reason, freedom, and morality, Kant introduced two different views of the world and the self as part of it: (1) the world we see through the senses and experience, that is, the sensible or ‘phenomenal’ world, and (2) the world as it is in itself, that is, the intellectual or ‘noumenal’ world (Kant [1785] 1998, s. III). In the same way we contrast the ‘phenomenal’ self and the ‘noumenal’ self. The noumenal self is an autonomous being freed from desires and inclinations and bound only by moral law. Berlin warned that here emerges the danger of justifying coercion. The autonomous self may impose its collective or organic will upon other persons in the name of rising to a higher self. Social policy or the welfare state by means of the redistribution of resources and the development of capabilities is based on the notion of positive liberty, which aims to open more doors to people in order to attain not only formal equality of opportunity but also effective values of freedom. But the notion of self-mastery in positive liberty is likely to result in unintentional coercion of external values and deprivation of freedom. It is the intention of negative liberty to secure a minimum degree of inviolable freedom to avoid these dangers. However, Berlin argued, in

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negative liberty, too, the ‘dominant self’ may attempt to conquer the ‘subordinate self.’ Man may attempt to liberate himself from desires that he cannot realize, so that he may hold onto what he is not prevented from attaining. In economics, this phenomenon is known as ‘adaptive preference.’ Berlin called this a ‘retreat to the inner citadel’ and criticized its futility. A retreat from an extended frontier to a citadel may appear to secure minimum liberty and safety, but it may be less free than possible satisfaction at the frontier. As we will see later, libertarianism denies a separation between an owning self and an owned self or a retreat from the frontier (Cohen 1995, p. 69). In terms of the concept of self-ownership, for libertarians, man is free in the negative sense if his self is identified with his own possession within himself. In this way the self evades the tyrannical dominance of a true self or extraneous values. In contrast, positive liberty is based on the separation between an owning self and an owned self. The separation of the self in positive liberty takes place in both the public and private spheres. In the public sphere, ‘democratic liberty,’ which is concerned with freedom of participation in public decision-making, represents a combination of democracy and liberalism at position (A) in Table 3.1. (A) stands for the claim of political liberalism based on the contractarian theory. In this context, the separation of the self means that public reason is detached from self-interest. In the private sphere, ‘perfectionist liberty,’ which is concerned with positive liberty in private decision-making, asserts human flourishing, virtue, and excellence. Perfectionist liberty addresses the inner structure of the self and advocates the advancement of capabilities through the reform of the subordinate self. The concept of persons as stock is essential to this notion of liberty. To perceive liberty in terms of the concept of persons as stock or existence will lead us to the discussion of excellence based on liberty. As presented in the system of ethics in Table 1.1 (see Chapter 1, section 1.2), the ethics for the valuation of ‘existence’ depends on a set of notions consisting of ‘virtue, excellence, and capability.’

3.2

PERSONS AND OWNERSHIP

Nozick’s Libertarianism Rawls’s theory of justice gives priority to basic liberties and calls for fair equality of opportunity and provision of a safety net for the worst off in society; resulting inequalities in social and economic status are justified on the basis of market competition and meritocracy. His theory gives weight to equality and justice among a family of contemporary moral values. In contrast, libertarianism holds liberty or freedom as its central value.

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Although libertarians represented by Robert Nozick and contractarians led by John Rawls are sometimes identified equally with the right-based moral theory (for example, both assign a high priority to liberty and rights), there are differences between them. What are these differences? Nozick’s theory of justice is an entitlement theory that consists of three principles: (1) justice in acquisition, (2) justice in transfers, and (3) the rectification of injustice (Nozick 1974, pp. 150–53). According to the first principle, a person who originally acquires something without adversely affecting others is entitled to that holding. The second principle asserts that a person who acquires a holding through voluntary exchange or a gift is also entitled to that holding. Under the third principle, no one is entitled to a holding except as stated in principles (1) and (2). Injustice in holdings should be rectified. According to Nozick, the state is the ‘night watchman’ in that its functions should be limited to the protection of citizens against violence, theft, and fraud; the enforcement of contracts; and so on. To define distributive justice by stipulating normative patterns for the end result and to redistribute income and wealth in concord with these stipulations contradicts the principle of voluntary exchange and violates people’s rights. Redistribution means that others become partial holders of an individual and is nothing but forced labor. This is a departure from the classical liberal’s notion of self-ownership, for which John Locke was responsible. Locke argued that every man has a property in his own person and therefore in the labor of his body (Locke [1690] 1988). G.A. Cohen believes that Nozick’s argument is not about liberty or justice per se but about the thesis of self-ownership, which argues ‘that each person is the morally rightful owner of his own person and powers, and, consequently, that each is free (morally speaking) to use those powers as he wishes, provided that he does not deploy them aggressively against others’ (Cohen 1995, p. 67). In short, the entitlement theory in libertarianism amounts to a theory of self-ownership and is reduced to the statement that just social relations involve market exchanges based on the historical principles of property rights. Thus, the moral justification for ownership of man’s body and ability must precede the evaluation of his acts and resulting outcome in terms of goods and utility. Freedom is a function of people’s self-ownership. The justice of holdings explains social justice. There is no discrepancy between freedom and justice. According to this view, it might follow that the thesis of self-ownership should reject any egalitarian redistribution of income. But is this correct? Nozick’s argument, which depends on the naïve Lockian thesis of ownership, does not doubt that individuals own their own persons and bodies. In contrast, as indicated in the last chapter, Rawls’s concept of free and

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equal moral persons does not accept the endowment of natural talents as a given and therefore morally justifiable, but regards it as ‘moral luck’ that should be treated as a common asset of society. It is pertinent here to explore the meaning of moral luck with reference to the thesis of self-ownership. Indeed, it is true that the scope and nature of freedom are a function of self-ownership, but the conception of self-ownership should be understood not as a truism, but as a deliberate construct from the social point of view. In other words, the conception of self-ownership does not stand by itself, but should be constructed as a theoretical instrument essential to formulating a just society. Different theories of justice have different theses of self-ownership as part of the concept of the self. Therefore, libertarian thought does not have a monopoly of the concept of self-ownership; the libertarian thesis of self-ownership is a special case and only consistent with its ideas of liberty and justice. The differences between Nozick’s and Rawls’s conception of selfownership can be attributed to the differences in their vision of society as they consider the design of a just framework for social cooperation on the basis of individual rights. The different visions underlying Nozick’s libertarian principles and Rawls’s egalitarian principles are ‘private society’ and ‘social union’ respectively (Rawls 1999a, pp. 456–64). In private society, each person, defined as an independent holder of his own interests, assesses social arrangements solely to achieve his personal goals and regards the demands they make on him as a burden. The state is engaged only in the protection of maximum individual rights. The theory of competitive markets in economics describes this sort of society. In social union, in contrast, each person, defined as a moral person with the potential powers of good and justice, regards the social institutions established through mutual consent as valuable in themselves and participates in the activity of social cooperation with a sense of obligation. The state is engaged in the organization and management of social institutions based on the principles of justice. Although Nozick later recognized the serious inadequacy of his libertarian position due to its neglect of social solidarity and humane concern for others (Nozick 1989, pp. 286–96), his argument contributed to the clarification of the philosophical basis of libertarianism in terms of self-ownership. The Self as a Subject of Possession Rawls’s principles of justice are based on the primacy of the right over the good. At the root of this idea there is recognition that each person is a different subject as well as a subject of possession. Rawls emphasized the separateness of persons in his criticism of utilitarianism, but it was Michael Sandel in his interpretation of Rawls who introduced the notion of the self

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as a subject of possession (Sandel [1982] 1998, pp. 54–9). Sandel argues that to conceive the self as a subject of possession means that personal identity is independent of the things a person owns (that is, his talents, aims, values, and preferences) and that it is separated and distanced from his possessions. His holdings belong to a person but are not he himself. The self is free not only in that he can critically evaluate his own possessions, but also in that a specific conception of the good attached to his possessions is not imposed on him from outside. The distinction between the self and possessions is the core of the Kantian conception of moral persons; it also corresponds to Berlin’s distinction between the dominant self and the subordinate self. How is this notion of the possessive self related to Nozick’s selfownership? His idea of self-ownership appears to be derived reasonably from the assumption of the separateness of persons. In other words, since persons are different from each other, they are rightful owners of themselves. But this reasoning is shortsighted, because in the thesis of selfownership the possessed self consists not only of one’s physical body but also of his abilities, aims, values, and preferences. According to the Kantian conception of persons, the latter objects are empirical and accidental so they cannot be morally admissible givens. For Rawls, the self is free in the positive sense in that it is separated from physical and nonphysical objects. For Nozick, the self is free in the negative sense in that it is identified with physical and non-physical objects. The concept of selfownership is neutral and thus allows for the two senses of liberty. Which is chosen depends on what kind of moral theory is formulated for society as a whole. According to Sandel, Rawls’s view of the distribution of natural talents as a common asset is justified if the subject of possession is a community that is based on an intersubjective conception of the self (Sandel [1982] 1998, pp. 78–81). This interpretation intends to point out the contradiction in Rawls that the view of a common asset implied by the difference principle has to depend on communitarianism and that a communitarian subject of possession is inconsistent with Rawls’s idea of the separateness of persons. Is this interpretation correct? For Rawls, people need one another as partners in a ‘social union,’ where the principles of justice hold. He writes: It is through social union founded upon the needs and potentialities of its members that each person can participate in the total sum of the realized natural assets of the others. We are led to the notion of the community of humankind the members of which enjoy one another’s excellence and individuality elicited by free institutions, and they recognize the good of each as an element in the complete activity the whole scheme of which is consented to and gives pleasure to all. (Rawls 1999a, p. 459)

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Sandel’s argument holds ex post if we call Rawls’s system of ‘democratic liberty’ a community. But Rawls’s process of reasoning is to derive the notion of a universal community from the view of a common asset based on the separateness of persons, not to derive the view of a common asset from a collective conception of the self on the basis of a holistic view of society. Contractarianism and communitarianism have a point of contact in the concept of common asset, but their whole process of reasoning is reversed. Self-ownership and Moral Luck The argument for negative and positive liberty has assumed that a person can control himself, whether for self-dominance or self-denial. But what about if he cannot? A widely held view is that man has a moral responsibility only for those events and acts that are under his control. This conviction has been influenced by Kant’s moral theory that good or bad luck should not influence moral judgment. When a person’s action or attitude is caused by factors beyond his control and yet we treat him as an object of moral judgment, it is called moral (good or bad) luck. Kant maintained that there should be no moral luck. He wrote: A good will is not good because of what it effects or accomplishes, because of its fitness to attain some proposed end, but only because of its volition, that is, it is good in itself . . . Even if, by a special disfavor of fortune or by the niggardly provision of a stepmotherly nature, this will should wholly lack the capacity to carry out its purpose – if with its greatest efforts it should yet achieve nothing and only the good will were left . . . – then, like a jewel, it would still shine by itself, as something that has its full worth in itself. Usefulness or fruitlessness can neither add anything to this worth nor take anything away from it. (Kant [1785] 1998, p. 8)

The theory of moral luck initiated by Bernard Williams and Thomas Nagel opposes the Kantian thesis.3 Williams and Nagel contend that moral judgment is to a great degree a matter of moral luck, because if we accept the Kantian thesis, it undermines most ordinary moral judgments. If all contingencies are abstracted from the world, where many things for which people are morally judged are determined by what is beyond their control, personal identity will be lost and nothing will remain as an object of moral valuation. As a result, these authors are inclined to doubt the Kantian moral theory itself. In pursuing his own good, man strives to attain the best results by the exercise of reason, prudence, and calculation, but life itself is governed by chance, accident, and luck. Life is sometimes compared to a card game; dealing the cards is random, but players do their best to obtain good

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results. How does moral theory view the influence of luck on the outcome of the game? As we have seen, the theory of liberty and self-ownership distinguishes between the dominant self and the subordinate self, or between the noumenal self and the phenomenal self. A phenomenal self is governed by social and natural contingencies. To give a Kantian interpretation to the original position, Rawls notes: ‘My suggestion is that we think of the original position as in important ways similar to the point of view from which noumenal selves see the world’ (Rawls 1999a, p. 225). The noumenal self cuts off the phenomenal self governed by natural contingencies and social accident and views the world from the standpoint of the moral self preceding the phenomenal self. A moral theory that does not distinguish between the two selves accepts moral luck and amounts to a dismissal of the distinction between moral and amoral valuation. The idea of fair equality of opportunity, as distinct from formal equality of opportunity, purports to eliminate the effects of social accident. Rawls’s difference principle does not morally accept the effects of natural contingencies and seeks to regulate them according to a certain egalitarian rule. Thus his principles of justice make a clear judgment about moral luck: that social status and natural talents as the regulators of an individual’s positions should be controlled morally, and that those who are disadvantaged by bad luck should be compensated and those advantaged by good luck should not be worthy of it unconditionally. Rawls writes: The natural distribution is neither just nor unjust; nor is it unjust that persons are born into society at some particular position. These are simply natural facts. What is just or unjust is the way that institutions deal with these facts . . . The two principles [of justice] are a fair way of meeting the arbitrariness of fortune. (Rawls 1999a, pp. 87–8)

Rawls’s idea of natural talents as a common asset deals with moral luck collectively based on the theory of the self and accords with the notion of insurance as an institution of mutual support. It is no exaggeration to say that his concept represents the first explanation of the social institution of insurance on philosophical grounds. Summary Three antecedents comprise different aspects of Rawls’s theory of justice. First, a basic structure of society, preceding the actual social state, is specified as the subject matter of the inquiry; this aspect of the theory provides the moral valuation of ‘institutions.’ Second, from the viewpoint of the

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flow concept of man, preferences for primary goods, preceding people’s actual conception of the good, lead to the substantive principles of justice; this aspect explains ‘acts’ of people concerning the disposal of primary goods. Third, from the viewpoint of the stock concept of man, the noumenal self, preceding the actual phenomenal self, is identified with the moral evaluator; this aspect of analysis invokes the ‘existence’ of moral persons under just institutions. In view of the set of notions ‘institution, act, and existence’ standing for the three objects of moral judgment, we can say that Rawls’s theory is a coherent grand theory of morality emphasizing the primacy of justice. His unique thesis of a common asset is derived from the specification of self-ownership from the viewpoint of human ‘existence’ as consisting of moral persons. Self-ownership is specified differently in accordance with the two conceptions of negative and positive liberty. Remembering that in our view positive liberty involves ‘democratic liberty’ and ‘perfectionist liberty,’ Rawls’s theory of justice is a development of the conception of positive liberty oriented toward ‘democratic liberty.’ In the rest of this chapter I will propose another development of the conception of positive liberty directed to ‘perfectionist liberty,’ which will be found through an examination of communitarianism. Although the Kantian view of the self was introduced into Rawls’s theory as a presupposition of moral persons, perfectionism is the evolution of the Kantian view of the self into the Aristotelian view of the self.

3.3

PERSONS AND COMMUNITY

Embedded Self and Common Good Since the early 1980s an important strand of thought in moral and political philosophy has emerged under the banner of communitarianism, more or less reviving Aristotelian or Hegelian traditions. The contemporary thinkers called communitarians include Alasdair MacIntyre ([1981] 1984), Michael Sandel ([1982] 1998), Michael Walzer (1983), and Amitai Etzioni (1993) among others. They criticize the totality of modern liberalism including utilitarianism, libertarianism, and contractarianism. Although their critiques of these doctrines vary, all communitarians challenge what MacIntyre calls the ‘failure of the Enlightenment project’ to provide an independent rational justification for morality (MacIntyre [1981] 1984, p. 39). As a result, morality is now regarded as value judgments that involve unsettled and unsettlable debates. To overcome conflicts in moral discourse, the moderns agree that their only resort is the end–means rationality. For

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this reason, modern moral theories, particularly in the liberal tradition, have assumed that people are abstract, autonomous, and atomistic and thus a neutral morality should govern a theoretical society consisting of such persons. From this critical viewpoint, Rawls’s approach, which eliminates all particular aims, interests, and values by the ‘veil of ignorance’ and purports to establish the conception of the right independent of particular conceptions of the good, is regarded as typical of post-Enlightenment thought. In the liberal–communitarian debate, the key thesis of communitarianism is that the individual is an ‘embedded self’ in community life, in contrast to the abstract, autonomous, and atomistic persons of contemporary liberal thought. Communitarians argue that value is rooted in the tradition of a community and shared by persons as the ‘common good’ through communal practices, again in contrast to liberalism, which emphasizes individual rights and conceives of individuals as the ultimate origin of value. According to the communitarian conception of persons, since the collective values of reciprocity, trust, and solidarity in community life shape an individual’s identity, it is impossible to conceive of a neutral, ‘unencumbered self’ who is detached from the tradition and practices of a community but still upholds the values of personal identity, good, and right. If this is the communitarian conception of persons, what is its conception of a community? For communitarians, a community is not a voluntary association of individuals deliberately chosen in a vacuum with cartes blanches. It has a real existence incorporating intrinsic values influenced by its common language, culture, history, and tradition. The ‘common good’ of a community is created by these values. In addition to the theses of persons and the community, communitarianism maintains some important themes, such as historicism, perfectionism, the relationship between good and right, and local justice. What follows is a summary of communitarian thinking with regard to these interrelated themes, focusing on the core concept of the common good. First, historicism maintains that morality and value have not been constructed as ahistorical, universal, and abstract principles, but crystallized in the rules of particularity and specificity with a historical context. Indeed, the problem of value pluralism is raised to an abstract level of thought, but the key to a solution is found in history. This, in turn, will lead to moral relativism, but for communitarians it is a mistake to seek universal morality. Second, a community’s morality is not explained as a result of the free choice of unencumbered individuals. So that individuals may make a free choice, a background of cultural plurality must be guaranteed. The aim of morality in a community is not to provide its members with either an obligation to follow rules or an assurance of rights, but to lead them to perfect their existence in light of the common good. In the public sphere, the

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purpose of a political system is to nurture a civic virtue. In short, communitarianism claims virtue ethics and perfectionism as the content of the common good. Third, since people cannot entirely ignore the aims and values of a community, that is, the pursuit of the common good, it is hard for communitarians to believe that abstract right has priority over the particular and practical good. Universal conceptions of right and justice are an illusion of individualism and liberalism. Morality is established as a virtue through the pursuit of the common good in the particular context of a community. Fourth, since there is no single, universal normative principle of distribution, plural principles are necessary for the distribution of particular goods in the particular areas in question. Communitarians thus hold that justice is local, not universal. The Liberal–Communitarian Debate In analyzing the liberal–communitarian debate, we will focus on the confrontation between communitarianism and Rawls’s contractarianism and consider whether the two systems of thought actually conflict in addressing the same questions, or alternatively whether they are debating at cross purposes.4 The ‘unencumbered self’ in liberal thought, named by communitarians as the target of their attack, is not a description of actual persons but a theoretical construct for the purpose of deriving the principles of justice as fairness, however it may appear odd and unnatural. The substance of the contractarian notion of the self was typically developed by Rawls to represent the characteristics of the persons behind the ‘veil of ignorance’ in the hypothetical ‘original position,’ in which the persons must decide what principles should be the ethical and political standards governing the basic structure of a society. Behind the veil of ignorance, people do not know their own identities – race, sex, religion, income, status, ability, preference, even their conception of the good life – and thus can equally argue for the benefit of everyone. In other words, the liberal idea of the ‘unencumbered self’ is a theoretical assumption for deriving a conception of the right that has priority over the good and enables the coexistence of multiple conceptions of the good. Therefore, the principle of the right is neutral and impartial with regard to the good, so that the good can flourish on the basis of free choice of individuals within the just structure of a society. By contrast, the ‘embedded self’ in communitarian thought is a theoretical construct that addresses different issues, that is, the norms that are assumed to exist in the form of the common good shared by the members of a community. If there is already some agreement on values on the basis

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of common culture, history, and tradition, it is unnecessary to search for principles of justice starting from scratch in order to organize a fair system of social cooperation; rather, it is a pertinent task of moral and political philosophy to account for the existing relationship between the individuals and society on the presumption of implicit sharing of the good among the individuals. Communitarianism is concerned with this task, which is different from that of contractarianism. Contractarianism seeks to explain how an agreement can be reached in a broader society consisting of individuals with different beliefs and identities. Communitarianism is a theory of the good, whereas contractarianism is a theory of the right. In accordance with the basic issues of a society to be addressed, the two theories adopt different methodological approaches with respect to man and society: individualism and holism. It is natural that the theoretical assumptions of the self differ depending on whether or not a theory addresses a society in which individuals have conflicting interests. But approaches to different issues are not mutually exclusive but complementary. In fact, even liberals do not deny that the individuals may hold common communal values, while communitarians may agree that the individuals not only follow tradition and customs but also criticize them for one reason or other. Both the ‘unencumbered self’ in liberalism and the ‘embedded self’ in communitarianism are instrumental in dealing with different issues. It is senseless to dispute the assumptions of the self in different theories concerned with the different issues of a society. Rather, it is important to consider how different theories are made coherent within a consistent conceptual framework. The Methodenstreit between Theory and History The liberal and communitarian debate on moral and political philosophy is reminiscent of the Methodenstreit (controversy on method) between theoretical and historical economists in Austria and Germany at the end of the nineteenth century. The Methodenstreit was a confrontation between Carl Menger and Gustav von Schmoller, or between the Austrian School of Economics and the German Historical School of Economics, concerning the relative superiority of the theoretical-deductive-individualistic approach versus the historical-inductive-holistic approach to economics. Classical and neoclassical economists (including the Austrian School) were attempting to establish universally valid economic logic based on the assumption of rational economic man using abstract and deductive methods. The German Historical School, which was a reaction against rationalism and the Enlightenment, challenged classical and neoclassical economics. It called for the clarification of the historical specificity of

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economic societies with an emphasis on the ethical values of communities and use of the empirical and inductive methods.5 Today historians of economics seem to agree on the negative appraisal of the Methodenstreit. Thus, Joseph A. Schumpeter assessed the controversy this way: ‘In spite of some contributions toward clarification of logical backgrounds, the history of this literature is substantially a history of wasted energies, which could have been put to better use’ (Schumpeter 1954, p. 814). Paraphrasing Schumpeter, T.W. Hutchison remarked: ‘In fact the Methodenstreit was, to a large extent, not a quarrel about methods so much as a clash of interest regarding what was the most important and interesting subject to study’ (Hutchison 1981, p. 190). In fact, the two approaches addressed separate problems. Theorists were concerned about small-scale problems relating to the static economic order in the process of resource allocation, including production, distribution, and consumption, that is, an order rhetorically described as established by an invisible hand. Historians, on the other hand, were interested in large-scale problems of the development of communities and the evolution of socio-economic institutions in the historical context, that is, the development and evolution led by a visible hand, as it were, from the viewpoint of social justice. The first and negative lesson of the Methodenstreit is that since the effectiveness of different methods is judged by their applicability to different subject matters, it is not useful to speak of the superiority of one method over another in a general way. The negative side of the Methodenstreit was best clarified by Schumpeter’s methodology of instrumentalism, which he developed as a solution to the controversy (Shionoya 1990). His methodology can be compared to Max Weber’s methodology of ideal type, which was also a response to the Methodenstreit (Shionoya 1997, ch. 8). Although the Methodenstreit was a misdirected quarrel, one cannot deny that it had a positive impact on broadening economic theory into economic sociology and institutional economics. This was made possible by the attempts to integrate theory and history through a choice of appropriate umbrella topics rather than by merely separating them according to the principle of the division of labor. Immediate positive results were Schumpeter’s economic sociology and Weber’s Sozialökonomik (social economics), among others; Schumpeter and Weber took the Methodenstreit seriously and worked out a methodology to extend the frontiers of economics (Swedberg 1998). A second and positive lesson of the Methodenstreit is that it stimulated a theoretical enterprise to work on wider problems of historical and ethical developments in society; in other words, the debate eventually led to the projects integrating history and theory. The lessons of the Methodenstreit for the liberal–communitarian debate are positive as well as negative. In the negative sense, it is argued that the

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current debate in moral and political philosophy falls into a similarly pseudo confrontation. It is of no use to dispute the assumptions of the self and related concepts in liberal and communitarian theories that address separate issues. On the positive side, it is suggested that liberalism and communitarianism should cooperate in putting a rightful theory in a rightful place, thereby contributing to a paradigmatic expansion of whole moral theories. Moreover, I will argue, the juxtaposition of the two debates reveals the interface of economics and ethics and raises genuine methodological questions about the relationship between individualism and holism. The Two Controversies Compared On closer examination, it is clear that the Methodenstreit between theory and history, on the one hand, and the controversy between contractarianism and communitarianism, on the other, are identical in form as well as substance. In both cases, the same problems and methods are at stake. Let us examine the relationship between the two debates by referring to Table 3.2, whose structure is similar to Table 1.2 (see Chapter 1, section 1.6). In Table 3.2 the two axes denote problem and method. Two research problems are distinguished: (1) the order within a given social system, and (2) the basic structure of that social system. As for methods, individualism and holism are differentiated. Although there are differences between economics and ethics, the two disciplines are similar in that an inquiry into the internal order of a system gives a theory of the good, while an inquiry into the basic framework of a system gives a theory of the right. Thus, economics as a theory of the good has developed the micro theory of market equilibrium (A) based on the concept of individual good (utility), and Table 3.2

Two controversies in economics and ethics Problem

Method Individualism

Holism

Order within system (theory of good)

Basic structure of system (theory of right)

(A) Theory of market equilibrium (theoretical economics)

(B) Theory of justice (contractarianism)

(C) Theory of common good (communitarianism)

(D) Theory of system evolution (historical economics)

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ethics as a theory of the good offers the communitarian theory (C) based on the concept of the common good. The former depends on the individualistic method and the latter on the holistic method. Then, as a theory of the right addressing the basic structure of society, contractarianism (B) derives a theory of justice on the basis of methodological individualism; historical economics attempted to explain the evolution of communities that should embody the idea of justice (D). In developing a theory of the right, the German Historical School adopted the holistic method, whereas the Rawlsian ethical theory depended on the individualistic method. Interestingly, the current debate in ethics is not a repetition of the past debate in economics; the combination of problem and method is turned around in the two debates. The Methodenstreit in economics was the conflict between (A) and (D), as one of the diagonal arrows in Table 3.2 indicates. Theoretical economics (A) offered the individualistic model that explained the equilibrium of demand and supply within market institutions by resorting to the behavior of agents to maximize utility and profits. By contrast, historical economics (D) tried to uncover the evolution of ethical, social, and political principles in order to explain factors constituting the basic structure of economic institutions, as seen typically in Schmoller’s approach. Schmoller advocated not only the empirical method of collecting historical data but also teleological holism as a heuristics procedure to cope with such a large-scale, complex research project (Shionoya 1995, pp. 72–4). It must be added that Carl Menger’s view was not confined to the static analysis of the economy. He emphasized that part of the socio-economic system was not the result of human calculation and the common will but ‘the unintended result of human efforts aimed at attaining essentially individual goals’ (Menger [1883] 1985, p. 133), and he maintained that the theoretical approach was still effective in explaining what was ambiguously designated by historians as the ‘organic phenomena.’ Although this idea anticipated the so-called spontaneous order paradigm of the Austrian School of Economics, it was rather the essence of the German Historical School of Jurisprudence, and Menger criticized the German Historical School of Economics for missing the point of its predecessors. The current controversy in ethics is the conflict between (B) and (C), as represented by the second diagonal arrow in Table 3.2. The social contract theory of Rawls (B) provides the principles of justice for the basic structure of society, relying on the choice of rational individuals behind the ‘veil of ignorance.’ The communitarian theory (C), as a challenger of the social contract theory, is concerned about the morality of a community in which the common good has prevailed, and describes how the individuals embedded in community life support its institutions by cultivating virtues through a variety of communal practices.

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When the two controversies are juxtaposed within the unified framework of Table 3.2, it becomes clear that they have an isomorphic structure with regard to research problems and methods. The two debates are not simple repetition but are in reversed orientation: the social contract theory based on individualism now formulates principles of justice for the basic structure of society, whereas the holistic communitarian theory now focuses on the norms of the common good within a community. Because the viewpoint of economics and ethics exchange places in the two debates, interdisciplinary issues that are not clearly recognized in each debate will be suggested. Let us determine what these issues are by comparing (A) versus (C) and (B) versus (D). A comparison between the two different theories of the good, that is, (A) and (C), reveals that ethics is concerned with the common good as distinct from the individual good (utility) in economics, although both theories deal with the rule of order within a social system. In their debate with contractarians, communitarians claim that they have discovered what should replace abstract principles of justice on the ground that the common good has precedence over the individual good. But I would argue that the common good is the moral order of a limited community within a broader social system, not a universal moral order that should regulate the system at large; therefore, the communitarian critique of contractarianism is misdirected. Instead, the gap between (A) and (C) is a genuine issue that should be taken seriously, for it relates to the moral standing of the market. The market is not a morally free zone; the play of the invisible hand in markets will lead to social good only if the common good is embodied and complied with in the marketplace, apart from a just framework of society. In other words, the moral conditions of market efficiency must be articulated by the common good, which includes the virtues of honesty, industry, responsibility, decency, and so on. A comparison between (B) and (D) suggests another gap between ethics and economics in the realm of the right. There is a genuine conflict of methods between deduction versus induction in reaching a just institution between (B) and (D), or between Rawls and Schmoller. Schmoller, believing that the historical evolution of economic institutions should be the theme of economics, focused on ethical norms as the social determinants of institutions. It is a mistake to reject his ethical approach by the stereotyped notion of value-free science, because his approach was framed in a teleological form that assumed methodological holism. For Schmoller, the major component of teleology was the principle of justice. With regard to the relationship between (B) and (D), the objective and universal conception of justice, viewed statically, is embodied in institutions (for example, the democratic regime in Rawls) and formulated by the agreement among

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people in the imaginary ‘original position’; viewed dynamically, however, the interactions, conflicting or accommodating, between values and institutions will produce the evolutionary process of society, which is not only spontaneous but also motivated by political intention. In the teleological view, the telos of social systems and institutions is generally considered to be self-survival and accounts for the mechanism of their transformation in terms of the goal-directed behaviour of systems (for example, the stages of communal developments in Schmoller). Methodological individualism and holism cannot be compromised if they are construed in an extreme form of reductionism. It will be constructive to admit the interactions between the individuals and society. For this purpose, as Joseph Agassi (1975) argues, it is helpful to use not only the axis of individualism versus holism but also that of psychologism versus institutionalism. By combining the two axes, ‘institutionalistic individualism’ becomes the most interesting case. Admitting the social influence of tradition, custom, and culture on individuals, this approach still locates individuals as decision-makers. The methodology of ‘institutionalistic individualism’ will shed light on the possibility of integrating (A) and (C), on the one hand, and (B) and (D), on the other, and provide a significant perspective of the relationship between economics and ethics. Tönnies’s Gemeinschaft und Gesellschaft A remarkable attempt at such an integration by the methodology of ‘institutionalistic individualism’was the sociological work of Ferdinand Tönnies. Tönnies intended to overcome the Methodenstreit by synthesizing the theoretical and historical methods (Tönnies [1887] 2001). He concluded that fashionable clichés about individualism versus holism were meaningless. Inasmuch as the parties in the current debate in moral and political philosophy seem unaware of Tönnies’s perspective and insight, they unfortunately repeat the sterility of the Methodenstreit. Although Tönnies developed a series of complex concepts and multiple dichotomies, a simplified model will suffice here. Table 3.3, which is adapted Table 3.3

Gemeinschaft and Gesellschaft

Social organization Gesellschaft Gemeinschaft

Psychologism vs. institutionalism Will

Individual (psychological) will

Social (institutional) will

Rational will Natural will

(A) Calculation (C) Understanding

(B) Contract (D) Custom

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from Table 3.2, represents an outline of his work. He did not regard the four entries (A)–(D) as mutually exclusive theoretical views, but as coexisting different spheres or functions of society. Two axes are introduced again. First, the nature of human will as a cause of action was distinguished as ‘rational will’ (Kürwille) and ‘natural will’ (Wesenwille). An individual simultaneously experienced both of them. They were defined in terms of relative degrees of thought and will in decision-making. ‘Rational will’ was a thought process with some element of will, whereas ‘natural will’ was a will process with some element of thought. Rational will was ideal, rational, and goal-oriented will that involved calculation and choice, whereas natural will was natural, real, and organic will that was determined by impulse, custom, and religion. As a first approximation, the two concepts were characterized methodologically by individualism and holism respectively. From the two will concepts Tönnies’s well-known dichotomy of Gesellschaft (society as a mechanical construct) and Gemeinschaft (community as a natural organism) was derived. Second, Tönnies differentiated between ‘individual will’ and ‘social will’; they were interpreted to denote the distinction between psychologism and institutionalism, allowing for the possible interaction between individuals and social institutions in decision-making. Viewed from the perspective of ‘individual will’ as a psychological causal factor of social relations, Gesellschaft is a mechanical construct that is chosen from rational ‘calculation’ (A) of independent individuals. Viewed from the perspective of ‘social will’ as an institutional causal factor of social relations, Gesellschaft consists of ‘contract’ (B) based on the reciprocal benefits of the individuals. In other words, a social relationship in Gesellschaft (for example, exchange) takes an externally explicit form of ‘contract’ that will produce the mutual benefits for rational, calculating, and purposeful individuals. As far as there exists a consensus of rational will among individuals, it is possible to assume that the fictitious social entity has, as it were, social will, the content of which is ‘contract.’ Tönnies argued that the actual forms of Gesellschaft were an association, the state, and the world, and the social rules of Gesellschaft representing social will were contract, policy, and public opinion respectively. On the other hand, Gemeinschaft, that is, community, was based on an implicit unity of the original, natural, and real will among individuals. The type of psychological individual will that supports a community is the ‘understanding’ (C) of the rule of the common good; the institutional social will that governs a community is the prevalence of ‘custom’ (D) as a result of social sympathy among individuals. In Gemeinschaft, ‘understanding’ means implicit conformity to the concord that has already existed in the form of ‘custom’ and belief; thus the social will shapes the individual

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will. This causal relationship between the individual will and social will in Gemeinschaft is just the opposite of the relationship in Gesellschaft, where the individual will leads to the social will. Tönnies’s Gemeinschaft consists of three types of bond: blood, soil, and spirit (or kinship, neighborhood, and friendship). Its actual forms are the family, village, and town respectively. The bond of spirit is the highest stage of evolution of Gemeinschaft and is created by the social practices of religion, occupation, and science. Tönnies’s sociological theory attempted to provide a grand synthesis of psychology, mind-set, and social institutions to explain the two basic social organizations, that is, Gemeinschaft and Gesellschaft. My interpretation of Tönnies’s theory is that he applied the methodological approach of ‘institutionalistic individualism’ to the two conceptions of will to avoid extreme reductionism of individualism and holism. Tönnies described not only historical development from Gemeinschaft to Gesellschaft, which Sir Henry Maine had formulated as ‘from status to contract’ in legal terms, but also the coexistence of both types as different social organizations. He showed that the natural will and the rational will are sometimes linked, sometimes running in parallel, and sometimes in direct conflict in the social and historical life of humanity. Under Tönnies’s theory, the current debate between liberals and communitarians in terms of contract versus custom, unencumbered self versus embedded self, or the right versus the good would be entirely misplaced. Liberal and communitarian approaches should be regarded as addressing different subject matters in social studies (that is, society versus community) and explaining the bases of major social organizations (that is, rational will versus natural will). From this viewpoint we will proceed to examine whether communitarian thought raises new perspectives and problems. The Communitarian Value System As entry (C) in Table 3.2 shows, the highest moral value in the communitarian value system is the common good, that is, the conception of the good as understood and shared by the members of a community. Historically, the common good is built in the form of custom. A community as Gemeinschaft of blood, soil, and spirit takes the forms of family, school, region, firm, race, state, and the global world according to the definition of shared goals and values. In Gemeinschaft, the members identify its aspirations with their own and mold their selves through the bonds of commonality. Michael Walzer regards the membership in a community as Rawlsian primary goods (Walzer 1983, p. 32). Communitarian thought, which originated in Aristotle’s ethics of virtue, argues that the cultivation of virtue in human nature makes it possible to

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realize the common good. Among the values ‘efficiency, justice, liberty, and excellence,’ excellence in the achievement of the common good occupies the center of the communitarian value system. Whereas in the utilitarian theory of good the concept of efficiency does not touch on the content of the good at all and only concerns instrumental rationality in the process of achieving the good, communitarianism specifies the common good in a community as its goal and makes much of the process of achieving the good in terms of excellence and virtue. Comparing (A) and (C) in Table 3.2, while they are both theories of good, there is a difference in the category of the primary moral value for each theory: efficiency in (A) and excellence in (C). In Table 3.3, there is also a difference in the nature of individual values: calculation in (A) and understanding in (C). Communitarians object to utilitarians, contractarians, and libertarians. For them, although utilitarianism ranks the good over the right, it lapses into the calculation of one-dimensional utility; both contractarianism and libertarianism, assuming abstract and atomistic individuals who are detached from the historical and social context, err in claiming universal principles of justice. Contractarians and libertarians are criticized for neglecting the persons who share the bonds of community, culture, history, and language. In Rawlsian contractarianism, however, just because people have competing conceptions of good, neutral procedural rules are required to ensure the coexistence of plural values. It is for this purpose that abstract individuals detached from their actual identities are instrumentally assumed to derive the democratic conception of justice from their voluntary agreement. After the scheme of justice is established, individuals are free to pursue their own good. Rawls’s principles of justice are, as it were, the principles of an ‘open community as Gesellschaft’ with the common good of democracy.6 But they are procedural principles that have priority over the good, not principles of the common good constituting the aim of society. In a society governed by Rawls’s principles, the common good of a community is an object of choice, as is true of a variety of other ‘goods.’ Each community produces its own good and virtue within a framework established by the conception of justice; it cannot replace justice with good and virtue. When communitarianism admits the primacy as well as a plurality of the good, how does it deal with the coordination of pluralism? Strangely enough, communitarians are not worried about conflicts because they assume that the common good is shared in an existing society and suggest plural and local principles of justice for different domains of good instead of universal principles of justice. But, first, where different common goods conflict, there is a need for principles of justice for reconciliation. Second,

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to determine the normative allocation of different goods, it is necessary to have principles of justice for the coordination of these goods. Claims for the priority of the right versus the priority of the good undoubtedly conflict if seen one-dimensionally. But, in fact, communitarian thought does not seek principles of coexistence and reconciliation to ensure value pluralism in an open society, but describes how people conform to the rules established within a given community, where the common good already prevails on the basis of tradition and authority. Communitarianism does not pay attention to a plurality of values beyond the community. To use Amartya Sen’s ingenious terms, communitarians do not place ‘reason before identity’ (Sen 1999b). Liberal and communitarian theories can be linked by locating them as different approaches to different problems with different methods, not as different approaches struggling for hegemony in moral theory. This is what I call partitioning consensus among different moral theories. Communitarianism should not attempt to replace a theory of the right with a theory of the common good, but rather to reconstruct itself as a theory of virtue and excellence that deepens the conception of the common good. The Relationship between Right and Good – a Restatement It is illuminating to examine the recent argument of Michael Sandel, once considered to be a communitarian, who tries to mediate between liberals and communitarians. In the second edition of his book, Liberalism and the Limits of Justice (1998), published 16 years after the first edition, Sandel rightly admits that the fundamental question in the debate is whether the right takes precedence over the good. He points out that there are two versions of the communitarian claim that justice cannot be independent of a particular conception of the good. He is correct in saying that ‘much of the confusion that has beset the liberal–communitarian debate arises from failing to distinguish the two versions’ (Sandel [1982] 1998, p. x). The first version claims that principles of justice derive their moral force from values shared in a particular community or tradition; the second claims that they depend for their justification on the intrinsic good of the ends they serve. According to Sandel, the first claim is communitarian in the usual sense, but it is a mistake to believe that principles of justice are justified by induction from commonsense morality espoused in a community, a mistake that parallels the liberal contention that principles of justice are neutral toward conceptions of the good. On the other hand, the second version of the communitarian claim is not, strictly speaking, communitarian but teleological or perfectionist. Sandel now seems to maintain this position and refuses to be labeled a communitarian.

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For our next task, we return to Figure 1.4 (see Chapter 1, section 1.6) and reconsider the relationship ‘right–rights–good.’ In the moral world, the regulative notion of the right should prevail to ensure the coexistence of plural conceptions of the good. Practical and institutional means to realize the right are the rights that ensure the satisfaction of the good in the economic world, consisting of the relationship ‘resource–goods–good,’ through the coordination of conflicting conceptions of the good. With regard to the relationship right–rights–good, we have seen the utilitarian and the contractarian opposite claims for priority of the right versus the good. I accept the priority of the right over the good in opposition to utilitarianism, but assert the validity of perfectionism to explore the substantive moral content of the end served by the rights. In this perspective, people pursue the good through the development of their own selves. Perfectionism does not accept the good as it is, but makes the quality of the good the object of moral valuation from the standpoint of virtue. Perfectionist standards not only support the rule of the right in terms of social institutions, but also cultivate excellent personal capabilities as the prerequisite of well-being. We will now proceed to the ethics of virtue, which concerns the relationship ‘virtue–capability–good.’

3.4

THE ETHICS OF VIRTUE

Excellence as Positive Liberty Isaiah Berlin distinguished between the two concepts of liberty partly because he wanted to show that John Stuart Mill, the most celebrated champion of liberty, confused the two. What Mill actually meant by positive liberty was excellence. He thought that, unless the domain of personal freedom, into which the state or society could not step, was protected, a variety of spontaneous and original activities would be crushed by collective mediocrity and conformity. Berlin contended that the defense of liberty and the pursuit of excellence were not identical and that the connection between them was merely empirical because excellence was possible even under coercion. Although the concept of positive liberty is liable to be interpreted as a claim for egalitarian redistribution in order to redress the defects of markets and ensure the real value of freedom, this interpretation is limited to one aspect of ‘democratic liberty’ in the public sphere, that is, ‘welfare liberty,’ as argued earlier. In defining positive liberty, Berlin did not distinguish between the public and private spheres, or between ‘democratic liberty’ and ‘perfectionist liberty.’ He wanted to say that it was undesirable to interfere

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in the private sphere and to tell people what to do or to be in the name of excellence. In this sense, Berlin’s dichotomy of liberty amounted to a doubt about the relationship between liberty and excellence. Thus a conflict of values similar to the dichotomy between efficiency and justice has emerged between liberty and excellence. Virtue and Internal and External Goods Alasdair MacIntyre is distinctive among contemporary communitarians in his attempt to transform communitarian thought into virtue ethics. MacIntyre has suggested a provocative project to overcome the evils of modern morality. One of the paradigms he advocates is to revert to Aristotelian ethics. In the Aristotelian view, eudaimonia or happiness is the state of having an objectively desirable and praiseworthy life. A human being has a particular nature and function and thereby the appropriate objectives. Based on the teleological notion of a human being, virtue means excellence (arete) in human nature and function. In other words, excellence makes possible the attainment of the ultimate human ends. In particular, moral excellence, as distinct from intellectual excellence, is constituted by practical reason as well as by custom. Virtue is the habitus of the human soul. In modernity, where teleology is rejected and rationality is demanded, moral principles have lacked tradition and unity and remained disorganized. To overcome this difficulty MacIntyre has resorted to the notion of virtue as the pillar of moral reconstruction. MacIntyre believes that although there have been too many different and incompatible conceptions of virtue from antiquity, it is possible to have a unitary core conception of virtues. As he defines it: ‘A virtue is an acquired human quality the possession and exercise of which tends to enable us to achieve those goods which are internal to practices and the lack of which effectively prevents us from achieving any such goods’ (MacIntyre [1981] 1984, p. 191). The words ‘practice’ and ‘internal good’ (and ‘external good’) are MacIntyre’s special usage. By ‘practice,’ he means a wide range of a socially established cooperative human activity, including the arts, science, games, politics, family, and so on through which internal good and external good are realized. For example, a person’s success in painting earns him goods that are external to that practice in the sense that they are attached to the activity in question by the accident of social circumstance – prestige, status, money, and power. It also leads to two different goods internal to the practice: (1) the excellence of his performance, and (2) the quality of life he discovers in the pursuit of that practice. A practice requires standards of excellence and obedience to rules because it has a history; success in a practice requires conformity

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to the authority, convention, and rules of the field in question. People must possess not only the expertise required for a practice but also virtues such as justice, courage, and honesty. An important point is that the achievement of internal goods by virtue is a good for all community members who participate in the practice, namely, the common good inherent in the community. By participating in the practice, one shares its purposes and standards with other people. Therefore, the concept of virtue is linked with the concept of community through the field where the practice takes place. According to Tönnies, the community formed by the realm of practices is the Gemeinschaft of spirit (or friendship). MacIntyre argues that external goods are a person’s possessions; the more that person acquires, the less there are for other people. Thus as a result of competition to excel in a social practice, there are losers as well as winners. In contrast, all members can share internal goods produced by the same competition; personal achievement enriches the community as a whole. In terms of economics, an external good is a private good in the sense that it has excludability in production (that is, if it is provided to one person, other persons are excluded from having it) and rivalry in consumption (that is, if it is consumed by one person, other persons are prevented from consuming it). On the other hand, an internal good is a public good in the sense that it is characterized by non-excludability and nonrivalry. MacIntyre’s distinction between external and internal goods and linkage between virtues and internal goods give us an important insight into the relationship between economics and ethics. A train of thought in economics concerning the nature of goods remains to be explored. There are two kinds of goods or commodities, called ‘democratic wealth’ and ‘oligarchic wealth’ by Sir Roy Harrod (1958, pp. 208–9) and ‘material goods’ and ‘positional goods’ by Fred Hirsch (1976, p. 27). Material goods (democratic wealth) are ordinary producible goods that people can more easily obtain as they get richer. In contrast, positional goods (oligarchic wealth) – the paintings of Picasso, villas in a first-class resort, ministerial posts, and the like – cannot be increased by production, and people cannot acquire them equally. These two kinds of goods together correspond to MacIntyre’s ‘external goods.’ MacIntyre is not interested in this division of external goods propounded by the two economists, both of whom address social frustration and inequality of consumption as a consequence of economic growth. Rather, MacIntyre, a moral philosopher, focuses on the distinction between external and internal goods, especially the latter. To identify the source of MacIntyre’s internal good, we might establish a third category of goods, called ‘excellence goods.’ The following passage by Bertrand Russell summarizes what

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Harrod, Hirsch, and MacIntyre wanted to say about the nature of goods in terms of the link between economics and ethics: We may therefore distinguish three kinds of sources of intrinsic value: First, goods in which there can be private ownership, but which can, at least in theory, be sufficiently supplied to everybody. Of these, the stock example is food. Second, goods which not only are private, but, by their logical character, are incapable of being generally enjoyed. These are those derived from pre-eminence, whether in fame or power or riches or what not. In theory, we might all be rich, but we cannot all be the richest man alive. Desires for pre-eminence, therefore, have a logically inescapable competitive character. Third, there are intrinsic values of which the possession does nothing whatever to diminish the possibilities of equal enjoyments for others. In this category are such things as health, pleasure in being alive on a fine day, friendship, love, and the joys of creation. (Russell 1954, pp. 132–3)

The Narrative Self and Tradition Given the importance that moral theory attaches to the self, it is useful to examine the observations of MacIntyre. While communitarians insist on the embedded self in place of unencumbered self, he perceives what might be called the ‘narrative self.’ MacIntyre rejects the liberals’ abstract conception of man; in his view, man does not write about himself on a blank sheet of paper, but replies to the question, What kind of narrative (given in the traditional social context) am I going to live to have a unique life? The metaphor of life as a unitary narrative, which is different from a series of fragmentary episodes, is meant to say that a life has the unity of the whole process, consisting of the beginning, the middle, and the end. Practice, narrative selfhood, and tradition are three key terms constituting MacIntyre’s ethics of virtue. For him, virtues defined with reference to individual practices are only piecemeal and do not differ from individual choice in the modern liberal. MacIntyre’s devotion to Aristotle lies in the Greek philosopher’s unitary orientation to virtue, which is rooted in the notion of a human life as a whole. Individual well-being is conceived from the viewpoint of the telos (ultimate end) of life, which transcends various goods emerging from various practices. Tradition from this perspective coordinates practices and transmits them through institutions from generation to generation. The self is situated within the narrative order created by tradition. Thus virtues not only sustain practices and accompanying internal goods but also enable us to seek unitary well-being based on a community. Moreover, virtues take an active part in succeeding and developing the tradition itself through the improvement and expansion of practices and institutions in the community beyond a personal life.

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Three Types of Virtue Ethics Since the 1980s moral philosophy has taken an increasing interest in virtue ethics.7 In the main, the various approaches to virtue ethics explore the source of morality in internal feelings, character, and motives exhibited in the practical experiences of individuals, as opposed to the general, abstract moral norms maintained by consequentialism, Kantian deontology, and contractarianism. Here we will analyze the features of virtue ethics based on three directions of research interest. At the end of the nineteenth century Henry Sidgwick understood commonsense morality in ordinary life as a form of intuitionism with which he tried to formulate moral principles. Intuitionism in ethics prescribes conformity to certain rules governing behavior and holds that moral beliefs based on intuition are justifiable. His examination of commonsense morality considered qualities such as wisdom, benevolence, justice, promises, truth, veracity, temperance, purity, courage, humility, liberality, and prudence (Sidgwick [1874] 1907, pp. 199–361). All of these attributes are usually considered to be virtues. They are materials or empirical data to be organized and formulated according to moral theory. Put differently, these qualities, which are subordinate to certain moral principles, act as a practical guide in everyday life. When morality is said to originate in the customs or conventions of society, social rules reside in these notions of virtue. The first type of virtue ethics, then, is concerned with the identification of commonsense morality. The research on commonsense morality ranges from philosophical investigations to narrative descriptions. As a comprehensive philosophical investigation of commonsense morality, nothing has surpassed Sidgwick’s work. As he saw it, intuitionism is a broad way of moral thinking consisting of narrow and wide meanings, that is, deontological moral theory and noninferential meta-moral theory, and has three phases: perceptional, dogmatic, and philosophical intuitionism. The above-mentioned virtues are classified as dogmatic intuitionism. An example of a narrative description of commonsense morality is William J. Bennett’s bestseller, The Book of Virtues (1993). Intended for the moral education of youth, this book compiles stories of all ages in East and West demonstrating such virtues as selfdiscipline, compassion, responsibility, friendship, work, courage, perseverance, honesty, loyalty, and faith. The first type of virtue ethics describes the morality of common sense in the form of metaphor and allegory; its key words are ‘virtues–intuition– commonsense morality.’ This approach develops encyclopedic knowledge of virtues and is helpful in establishing moral character, but it lacks a theoretical framework and philosophical investigation. Some argue, however,

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that the dismissal of comprehensive moral principles is the quintessence of virtue ethics. A dominant view of communitarianism maintains that the common good condensed into commonsense morality constitutes the rules of society. In terms of the three ethical approaches – good, right, and virtue – identified in Chapter 1, section 1.2, virtue focuses on the ‘existence’ of human beings as opposed to ‘act’ and ‘institution’ as the object of moral evaluation. The ethics of existence evaluates the practical ability, functioning, and character of human beings; it employs the concept of ‘excellence’ as opposed to the concepts of ‘duty’ and ‘happiness,’ which address the evaluation of human acts. Since human ability, functioning, and character are concerned with man’s existential traits, virtue ethics requires us to study the internal psychological factors constituting human nature such as soul, feeling, and volition besides the fact of commonsense morality, which is externally perceptible in society. Thus the second type of virtue ethics is characterized by the key words ‘virtue–existence–human nature.’ From this perspective, a hallmark of virtue ethics is the role of the intellect. Aristotle defined virtue (arete) as an admirable state of character that makes certain functionings of man work well. Virtue is synonymous with excellence and includes moral virtue and intellectual virtue. ‘The virtue of man also will be the state of character which makes a man good and which makes him do his own work well’ (Aristotle 1980, bk II, ch. 6). According to Aristotle, moral virtue includes courage, temperance, justice, friendliness, and so on, which are properly guided by intellectual virtue. Intellectual virtue, unlike welfarism, which considers man as a utilityproducing machine, critically examines human functionings and acts derived from them and organizes lifestyles as a whole. Man’s existence not only entails various functionings but also evaluates and constructs these functionings introspectively. Here emerges the distinction between the ‘dominant self’ and the ‘subordinate self,’ the essential point of positive liberty. The idea of liberty in John Stuart Mill, with a focus on ‘man as a progressive being,’ was addressed in the relationship between liberty and excellence. In addition to the personal aspect of ‘virtue–existence–human nature,’ Aristotelian virtue ethics is also concerned with the social aspect of human existence characterized by the key words ‘virtue–practice–community.’ The existential character of human beings arises out of relations in social practice, and thus they become social beings. Generally speaking, activities and practices in various fields of social life take place through some framework established by communities. As community members, we share the objectives and standards that inform social practices. The third type of virtue ethics pays attention to this framework and aims to coordinate commonsense morality by assuming the common good prevalent in a community. The

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second and third types of virtue ethics together constitute a moral approach to human existence embedded in society. It is because the transformation of social life has split the integrated private and social aspects of virtue ethics that MacIntyre has proposed the virtue approach once again to recover the unity of life. For him, the ethics of the good concerning the ‘acts’ of individuals conceived as detached from their ‘existence’ or state of character views an individual life as ‘a series of unconnected episodes’ (MacIntyre [1981] 1984, p. 204). The ethics of the right concerning the ‘institutions’ of society proposes a social process that provides social practices with rules, but most institutional analyses are confined to the issues of the productive efficiency and distributive justice of ‘external goods.’ MacIntyre remarked: ‘Without the virtues there could be a recognition only of what I have called external goods and not at all of internal goods in the context of practices. And in any society which recognized only external goods competitiveness would be the dominant and even exclusive feature’ (ibid., p. 196). A society without internal goods is Gesellschaft as a group of strangers acting for reasons of self-interest but not Gemeinschaft. The Characteristics and Issues of Virtue Ethics Whereas the moral order described by Rawls places the priority of the right over the good, MacIntyre argues for the priority of the virtue over the good. Here, virtue is combined with the common good, which is different from the individual good. Rawls and MacIntyre thus share the view that there is some value superior to individual good and reject the utilitarian conception that the social aggregate of individual good is the supreme moral standard. Then a real issue is the relationship between right and virtue. Today virtues are generally regarded as the propensities of individuals to conform to rules and institutions, especially in the context of ‘virtue–intuition–commonsense morality.’ As Rawls describes it: ‘The virtues are sentiments, that is, related families of dispositions and propensities regulated by a higher-order desire, in this case a desire to act from the corresponding moral principles’ (Rawls 1999a, p. 167). Based on this view, Rawls seems to hold that virtues are a series of propensities to act in accord with his principles of justice. MacIntyre agrees with Rawls on the formal role of the concept of virtue but does not accept the totality of the moral scheme. Since a virtue is now generally understood as a disposition or sentiment which will produce in us obedience to certain rules, agreement on what the relevant rules are to be is always a prerequisite for agreement upon the nature and content of a particular virtue. But this prior agreement in rules is . . . something which our individualist culture is unable to secure. (MacIntyre [1981] 1984, p. 244)

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He asserts that the concept of justice has vanished, because although it should be valid as shared ideals in a community, it is hard for either Rawls or Nozick to find a consensus on such substantive ideals under the individualistic assumptions. In a society without substantive shared ideals, the notion of ‘desert’ is absent so that we cannot base the conception of justice on desert. Where the concept of the common good does not exist, we do not know what anyone deserves and what constitutes justice. In virtue ethics, however, the notion of a contribution to the common good facilitates evaluation of individuals and determines distributive justice. Then, what is the foundation of a community that emphasizes the common good? MacIntyre, following Aristotle, believes that it is the bond of friendship rather than justice. This view corresponds with what Tönnies described about the Gemeinschaft of spirit rather than that of blood and soil. Theoretical issues on the relationship between justice and virtue include a general question on how the two types of virtue ethics – ‘virtue–existence– human nature’and ‘virtue–practice–community’– are related. The two types indicate different approaches to virtue with reference to either internal human nature or the community in which man is situated. They also employ a different methodology: the former presents virtue as a universalistic value for human beings in general, and the latter depicts it as a relativistic value rooted in tradition and community. This difference is revealed in Aristotle’s two categories of a good man and a good citizen and is a necessary result of the fact that man is defined from the perspective of both the individual and society. Rawls’s view of virtue denies the possibility that the virtue approach is an independent system of ethics. However, it is possible to regard the achievement of excellence in the fields of social practice as virtue once the principles of justice are implemented by social institutions. Virtue is not to be viewed as an auxiliary means to achieve justice, but as an ideal that would promote Rawls’s ‘well-ordered society’ to a ‘virtuous society’ on the assumption that his principles of justice would be embodied in the institutions. Following Part I (Theory) and Part II (Institutions) in his Theory of Justice, Rawls discusses Aristotelian ethics in Part III (Ends), where his interest is to base a coherent relationship between the good and the right on moral psychology. This is the ‘stability’ problem of a conception of justice, that is, whether a disposition fostered by a conception of justice will accord with the individual good. Since Rawls’s system is based on the priority of the right over the good, it seems unnatural for him to argue artfully for the congruence of the right and the good. Rather, he should have developed a theory of virtue that was consistent with the priority of the right over the good.

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MacIntyre does not criticize Rawls and Nozick for the internal inconsistency of their arguments, but insists that their theories are derived from certain premises that have not been proved (MacIntyre [1981] 1984, p. 248). He is right, because the premises of their arguments are nothing more than their images of an ideal society: Rawls’s ‘social union’ and Nozick’s ‘private society.’ But significantly, MacIntyre calls for consensus through virtue instead of justice because he envisions society in the form of a community. When it is appropriate to assume such a society, one is allowed to presuppose the ‘narrative self’ that is instrumental in analyzing the nature of the community and in addressing the existential aspect of human beings. Moral questions that are not exhausted by approaches in terms of human ‘acts’ and social ‘institutions’ require us to use the third approach to ethics in terms of the ‘existence’ of human beings. This does not mean that other approaches are invalid.

3.5

CAPABILITY AND EXCELLENCE

Sen’s Ethics Amartya Sen’s capability approach is a critique of Rawls’s theory of justice (see Chapter 2, section 2.6). Locating the concept of capabilities between commodities and utility, Sen holds that the capability approach, in contrast to the commodity and utility approaches, provides the moral criterion for evaluating social arrangements. For him, it is the egalitarian criterion to make up for the lack or shortage of functioning capabilities. Sen regards this approach to be in accord with the Aristotelian tradition of moral philosophy. As we have seen, MacIntyre, following Aristotle, maintains that virtue means excellence in various human activities and yields the property of public goods. Thus Sen’s view of justice as consisting of the minimum security of functioning capabilities and MacIntyre’s view of virtue as their maximum exertion seem to be linked by the medium of Aristotle. Can we interpret Sen’s argument on the equality of functionings in the context of virtue ethics rather than justice ethics? Let us take a closer look at Sen’s argument (Sen 1992). By the disposal of goods, human beings achieve various – mental and physical – functions that make up their lives and seek to improve their well-being. The traditional view that regards well-being as income or commodities is the commodity (opulence) approach; another traditional view that sees well-being as utility or pleasure is the utility (happiness) approach. Sen rejects both and proposes the capability approach, which focuses on peoples’s functioning capabilities. This approach might be interpreted as an attempt to

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specify the aspect of well-being that has been vaguely referred to as ‘quality of life.’ According to Sen, functionings essential to well-being are a person’s achievements, varying from the most basic, such as being well nourished and healthy to avoid premature death, to the more sophisticated, like having self-respect, participating in the life of one’s community, and so on. People’s lives depend not only on the combination of ‘functionings’ they actually choose but also on the extent of their freedom they are given in choosing them. The extent of freedom is represented by the ‘capabilities’ that represent a set of alternative functionings attainable under the limitations of income, prices, and the like. Therefore, the core of Sen’s capability approach lies in (1) evaluation of the well-being achieved by the choice of functionings, and (2) evaluation of the freedom of choice (that is, capability). Capability, as distinguished from functionings, is simply the freedom to achieve well-being in terms of functionings (Sen 1990). Sen argues that Rawls’s primary goods are merely a means to this freedom. People’s claims to rights should relate not to utility, resources, or primary goods, but to the freedom to choose various ways of life and basic capabilities to satisfy their ‘basic needs’ (Sen 1993, pp. 40–41). For Sen, the well-being achieved and well-being freedom constitute an informational basis for moral judgment. But this is only half of the story. In his approach to ethical theory, Sen further distinguishes between well-being and agency (Sen 1985b). By ‘agency’ he means that a person has goals and values other than the pursuit of his own well-being. As a result, the person may even act to diminish his own well-being. By analogy with the argument in the previous paragraph, it is maintained that in addition to ‘agency achievement,’ we must take into account ‘agency freedom’ to choose and achieve goals and values other than those of well-being. As shown in Table 3.4, Sen’s ethical framework thus consists of four quadrants that distinguish two aspects of the human being and two stages of valuation. The totality of evaluation in the four spaces determines wellbeing or quality of life. Referring to this table, we can summarize Sen’s positive contributions. First, one aspect of human beings is that they Table 3.4

Sen’s ethical framework Stage

Aspect Well-being aspect Agency aspect

Achievement stage

Opportunity stage

(A) Well-being achievement (C) Agency achievement

(B) Well-being freedom (D) Agency freedom

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pursue goals and values besides well-being – in Table 3.4 (C) and (D) are proposed. Second, there is a stage of valuation for opportunity and freedom besides achievements – (B) and (D) are proposed. And third, achieved well-being should be valued in terms of functionings as a way of life rather than subjective utility – a change of interpretation for (A) is proposed. Welfarism, on which economics depends, is limited to achieved well-being and interprets it in terms of utility. Among these arguments, the second one has already been made by contractarian theory pioneered by Rawls; Sen’s own contributions are the first and third. How can they be appraised? Since the ability to convert goods or resources into functionings differs among people, Sen is right when he says that capabilities rather than goods or resources should be considered in the evaluation of equality and justice. Expanding the opportunities of choice in the dimension of capabilities – namely, the expansion of freedoms – means the enlargement of possible lifestyles. In terms of interpersonal comparisons, this means fair equality of opportunities in the dimension of capabilities. The problem is determining what criteria should be used to define equality of capabilities. If some crucially important capabilities are called ‘basic needs,’ it is reasonable to say that their minimum satisfaction provides a standard of equality. But it seems that Sen is concerned not so much with the pursuit of success and excellence of functionings as their lack or shortage. He does not tell us how quantitative and qualitative achievements are to be valued in terms of capabilities regarding both the well-being and agency aspects of a person. He notices that functionings have objective characteristics and that achievements resulting from a chosen combination of functionings are valued introspectively and critically, unlike the case of utility. If functionings can be valued objectively, so can excellence in lifestyle. Although Sen admits that there are two approaches to the valuation of achievements, self-valuation and standard valuation (Sen 1987, p. 30), he is skeptical about a universally valid standard. He refers to Aristotle as the root of the capability approach, but does not grasp the theory of virtue and excellence explored by Aristotle, who made a list of desirable functionings. Martha Nussbaum, who is quite sympathetic to the capability approach, is more affirmative in her interpretation of Aristotole (Nussbaum 1993). Nussbaum suggests that there are ten ‘central human capabilities’: (1) life, (2) bodily health, (3) bodily integrity, (4) senses, imagination, and thought, (5) emotions, (6) practical reason, (7) affiliation, (8) other species, (9) play, and (10) control over one’s environment (Nussbaum 2000, pp. 78–80). According to my classification, this approach belongs to the ‘virtue– existence–human nature’ type of virtue ethics and has little to do with the promotion of excellence claimed by the ‘virtue–practice–community’ type.

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She regards the security of the threshold level of each central capability as the political goal, but makes no mention of the excellence in achieved social practice. Toward Perfectionist Ethics Sen’s and Nussbaum’s arguments for the capability approach raises two problems that inform the development of the ethics of virtue. First, it is important to recognize virtues as not only personal behaviour but also the behavior of persons in a social context. Functioning in a social situation always presupposes some community. This consideration amounts to determining the relationship between the two types of virtue ethics: ‘virtue– existence–human nature’ and ‘virtue–practice–community.’ The following passage of Marx is relevant here: ‘The human essence is no abstraction inherent in each single individual. In its reality it is the ensemble of the social relations’ (Marx [1845] 2000, p. 172). Second, the relationship between a society and individuals is not only passive and conservative so as to maintain the existing functions of the community, but also positive and creative so as to develop them. From the Schumpeterian perspective, virtue has both static excellence in the maintenance of a communal order and dynamic excellence in the ‘creative destruction’ of the existing order. The former is an internal expansion of a paradigm of social practice and the latter a creation of a new paradigm to replace the existing one. Different contemporary counterarguments to Rawls’s theory of justice – communitarianism, virtue ethics, and the capability approach – have made possible a perspective on a normative theory that is a distinct paradigm of ethics for ‘existence,’ rather than ‘act’ and ‘institution,’ as the object of valuation. As mentioned in Chapter 1, section 1.2, the moral theory of ‘existence’ is virtue ethics rather than the ethics of the good and the right. Its core principle is ‘excellence or perfection’ rather than ‘efficiency and justice,’ and ultimately depends on capability rather than utility and rights. Let us proceed to identify the propositions in the ethical system of excellence or perfection.

3.6

IDEAS OF PERFECTIONISM

The most prominent representative of perfectionism in ethics was Aristotle, although there were many other moral perfectionists, including Plato, Aquinas, Spinoza, Leibniz, Kant, Hegel, Marx, Nietzsche, T.H. Green, F.H. Bradley, and B. Bosanquet (Hurka 1993, p. 3). It is not that a large

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number of philosophers in different ages developed a uniform paradigm under the name of perfectionism. They are grouped together only because they shared some characteristic ideas on human existence while advocating different systems of thought. My own conception of perfectionism can be described as follows. The Basic Theses of Perfectionism First, perfectionism sees the well-being of a person as the development of various traits of character and ability constitutive of human nature that achieve excellence, perfection, flourishing, and self-realization. The philosophical basis of this view is to define the object of moral valuation not as feeling, action, or rules but as human existence. Human beings conceived in terms of existence differ from the individuals conceived in terms of instant flow of feelings and fragmentary actions in that they have a durable identity and a life plan. Hence, human excellence is valued independently of subjective pleasure and utility. Perfectionism is an objective theory of well-being. Derek Parfit discusses three theories that explain the objects pursued by self-interest: hedonistic theory, desire-fulfillment theory, and objective list theory (Parfit 1984, pp. 4, 499). While the third theory is perfectionism, it is called objective list theory to emphasize the objectivity of the value standard in perfectionism. The good things of this standard, Parfit notes, are moral goodness, rational activity, the development of abilities, having children and being a good parent, knowledge, and an awareness of true beauty. Second, we can take a further step from the conception of excellence in terms of human nature to the conception of excellence in terms of achievements enabled by human nature, functionings, and capabilities, because the exertion of capability represents personal traits of character as well as actual social activities. MacIntyre’s concept of ‘social practice’ relates to the human aspect of social activities; it requires individuals to exercise specific capabilities and to comply with specific rules. Their achievements will be valued according to specific standards. Thomas Hurka distinguishes between two kinds of perfectionism: ‘narrow perfectionism,’ based on the evaluation of human nature (the first point above), and ‘broad perfectionism,’ based on the development of capacities and excellence of achievement (the second point above) (Hurka, 1993, p. 4). Philosophers have talked about the development of human nature, but the matter of identifying the intrinsic nature of human beings is such a metaphysical question that it is difficult to answer. For this reason, Hurka accepts the second version of perfectionism, and he may be right. But human nature and achievement are inseparable. The two versions of perfectionism – what

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might be called ‘intrinsic perfectionism’ and ‘revealed perfectionism’ – correspond to two types of virtue ethics: ‘virtue–existence–human nature’ and ‘virtue–practice–community.’ The question of excellence in one’s personal life is the other side of the question of excellence in social practice. Third, if excellence consists of achievement through functionings and capabilities, achievement cannot be valued on the dimension of utility. When perfectionism is viewed as a theory of good, like ideal utilitarianism, excellence is liable to be identified with utility. But an objective function assumed in perfectionism is not a utility function but a production function, which designates the capacity of producing objective achievements in social practice, not the capacity of enjoyment of subjective pleasure or happiness. A salient way of living is not so much in consumption as in production. Therefore what increases functionings and capabilities in human existence should be seen as investment in human stock. Fourth, ethics of virtue and perfection cannot be discussed apart from the concept of culture. Generally, the term ‘culture’ has two meanings (Throsby 2001, pp. 3–5). First, culture describes a set of attitudes, beliefs, mores, customs, values, and practices shared by any group; it contributes to the establishment of a distinctive identity of the group in terms of state, region, religion, ethnicity, and so on. Second, culture, more narrowly defined, denotes certain activities and the products of those activities, such as intellectual, moral, and artistic aspects of human life. In its first meaning, culture is an anthropological and sociological concept; it is likely to be used as a noun (Christian culture, Japanese culture, and so on). The second meaning of culture refers to a functional concept; it is likely to be used as an adjective (cultural industry, cultural state, and so on). In any definition, the property of culture as public goods is important. It is because culture is neither exclusive nor competitive and is enjoyed universally that perfectionism can claim excellence and virtue in the realm of culture. The communitarian’s ‘common good’ and MacIntyre’s ‘internal good’ are both based on the property of culture as public goods. Excellence combined with the concept of culture embraces individuality and sociality, subjectivity and objectivity, and particularity and universality. Goods and services related to the culture concept might be called ‘excellence goods.’ Fifth, the most salient aspect of personal excellence is to display one’s superior ability in social activities and to produce what Schumpeter called ‘innovation.’ His concept of innovation applied to various fields of society, such as economy, politics, science, arts, technology, and morality. Subdivision of each field leads to specific notions of practice, in which different standards of valuation hold on different objective grounds. Innovation is a creative destruction of these standards. The pursuit of excellence means a quest for the genus ‘cultural values’ (see Chapter 1,

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section 1.4). It is neither possible nor necessary to weigh factors relevant to cultural values and to unify them as one measure. Sixth, each field of social practice has a social function to undertake the specific tasks of society imposed by the environment. However, all of the fields do not always fulfill the most crucial functions for the social order. The relative importance of social areas differs according to historical circumstances, because challenging tasks of the time imposed on the social areas differ in importance. Schumpeter addressed the historical changes in ‘social values’ and ‘social leadership’ (see Shionoya 1997, pp. 227–9). By social values, he meant the aptitude for fulfilling socially necessary functions in a certain historical situation. The social values attributed to each area do not have equal rank. A certain function might signify more important social values than other functions at a given time and attribute social leadership to a limited area. In this sense, the social valuation of excellence is historical and related to particular communities. According to Michael Mann, we have a broad framework to conceptualize the historical changes in the relative importance of the economic, ideological, military, and political fields of social practice (Mann 1986, pp. 22–8). Whereas in the past ideology meant religion, it now means science, the arts, and culture. Based on the relative importance of these fields of social practice, a society can choose its own way of life. Since we are particularly concerned with the relationship between the economy and morality in the various social areas, the value of excellence together with that of justice constitutes the theoretical foundation for us to relativize the economy. Seventh, our conception of perfectionism is not elitist but liberal. Carriers of excellence are not limited to a small number of people with superior abilities. The achievement of excellence includes the satisfaction of the worthiness of life that is available to all people. The worthiness of life is the basic category of human excellence and flourishing. Liberal perfectionism maintains that autonomy leads to self-respect only if it is accompanied with efforts toward achieving excellence. Furthermore, liberal perfectionism includes consideration for the vulnerable persons who lack not only excellence but also the basic needs. Since it focuses on the improvement of human nature, it is concerned with a wide range of issues from human excellence to vulnerability and provides a foundation for the new notion of positive social security. It is commonplace to say that protecting the worst off is the primary function of the welfare state. By contrast, we subsume the notion of vulnerability into liberal perfectionism or the ethics of virtue and attempt a more systematic ethical approach to social security. Alasdair MacIntyre, one of the proponents of current virtue ethics, tries to incorporate human vulnerability and dependence into moral philosophy (MacIntyre 1999).

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And eighth, if we assume that the contemporary social system consists of the three-story structure ‘capitalism–democracy–social security’ and that Rawls’s principles of justice are implemented in this structure, each individual is allowed to pursue his own interest within this framework. This is what Rawls called the ‘well-ordered society.’ The ethics of virtue takes a step forward to evaluate the pursuit of good. The ‘excellent society’ is a society in which there is a standard of virtue that is fully satisfied. As good is subordinate to right, so is virtue; but virtue is superior to good. Historically speaking, the capitalist society has attached overwhelming importance to the economic realm. Consequently, success in the economic realm has acquired social value, and economic considerations have dominated ethics in the form of the commodity approach and the utility approach. The contemporary significance of perfectionism is to broaden the scope of ethical valuation to noneconomic activities that have been defended by the vague notion of the quality of life. Interest and excellence in the realms of politics, science, the arts, technology, culture, morality, the environment, and so on, rather than the economy as such, will lead to an excellent society in the contemporary context. It is no accident that some of the world’s economically developed countries, after having achieved economic prosperity, became the center of excellence in science and the arts. In fact, they practiced perfectionism by transferring economic resources from the economy to the culture realm. Excellence, Autonomy, Self-respect, and Worthiness of Life Let me explain the underlying view of perfectionism. It is unnecessary to identify perfectionism with Nietzsche’s elitism or idea of the Superhuman (Übermensch). We possess a view of liberal perfectionism instead of elitist perfectionism. The worthiness of life for all people is compatible with the achievement of excellence. The notion that life is well worth living is a personal self-evaluation accessible to all. Moreover, it is not self-satisfaction based on feelings of resignation. Worthiness of life is the most basic category of excellence. It is appropriate to examine the relationship between relevant notions such as excellence, autonomy, self-respect, and worthiness of living with special reference to John Rawls, the anti-perfectionist. Rawls’s concept of moral persons – the core presupposition of his principles of justice – assumes that people have two moral powers: the capacity for a conception of the good and the capacity for a sense of justice. They are free and equal; they have a right to equal respect and consideration. In other words, moral persons are ‘autonomous’ in the sense that they are both ‘rational’ and ‘reasonable.’ The basis of equality is found in the equality of the capacities for moral personality. Then, how are these capacities

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or powers provided? Primary goods are all-purpose means for people to develop and exercise their two moral powers. Thus principles of justice are grounded in the rights to moral personality secured by primary goods. Joseph Raz is known as an advocate of perfectionism as political morality, based on a conception of well-being that combines autonomy and value pluralism (Raz 1986). Whereas personal autonomy means selfdetermination of one’s life and a variety of options, autonomous life is valuable only if it is in the pursuit of valuable activities, which are defined by the perfectionist standards in the field of social practice. On the other hand, value pluralism asserts the existence of a variety of incompatible but intrinsically valuable forms of life. Under the assumption of personal autonomy, the existence of different occupations, different lifestyles, and different outlooks develops the quality and capacity of individuals in different directions and leads to different patterns of self-realization. My argument, in contrast, maintains liberal perfectionism based on the two concepts of autonomy and self-respect that are essential to moral persons. Given the Kantian concept of moral persons, autonomy means that people are rational agents and have the will to legislate themselves; in other words, that both the rational and the reasonable are satisfied through universal laws enacted by autonomous persons. Kant defined autonomy of the will as the supreme principle of morality: ‘Autonomy of the will is the property of the will by which it is a law to itself (independently of any property of the objects of volition)’ (Kant [1785] 1998, p. 47). Since this law is the categorical imperative, autonomous persons ought to adopt ‘the ends that are also duties’ and to be constrained by them. Therefore, under the presumption of autonomy, the right to self-governance or self-determination is accompanied by duties. According to Kant, ‘the ends that are also duties’ are defined as ‘one’s own perfection and the happiness of others’ (Kant [1797] 1996, p. 150). Rawls’s moral persons also have an obligation to carry out these duties; in a well-ordered society they possess ‘full autonomy,’ in contrast with ‘rational autonomy’ for agents acting in the original position (Rawls 1980, pp. 520–21). By the duty of one’s own perfection, Kant meant ‘the duty to make ourselves worthy of humanity by culture in general, by procuring and promoting the capacity to realize all sorts of possible ends, so far as this is to be found in a human being himself’ (Kant [1797] 1996, p. 154). One’s own perfection (eigene Vollkommenheit) is a person’s excellence. Thus Kant’s categorical imperative claims the ethics of virtue as excellence based on the concept of moral persons. Rawls clarifies the relationship between excellence and self-respect. He says: ‘Let us distinguish between things that are good primarily for us (for the one who possesses them) and attributes of our person that are good both for us and for others as well’ (Rawls 1999a, p. 389). These two

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attributes correspond to MacIntyre’s external good and internal good (see section 3.4 above). ‘Things that are good primarily for us’ include income, commodities, and property. ‘Imagination and wit, beauty and grace, and other natural assets and abilities of the person are goods for others too . . . This class of goods constitutes the excellence: they are the characteristics and abilities of the person that it is rational for everyone (including ourselves) to want us to have’ (Rawls 1999a, p. 389). Rawls calls the latter good excellence or virtue, pointing out its property of public goods. Then he puts forward an important idea: ‘Thus the excellences are a condition of human flourishing; they are goods from everyone’s point of view. These facts relate them to the conditions of self-respect, and account for their connection with our confidence in our own value’ (Rawls, 1999a, p. 389). According to Rawls, self-respect has two aspects: the first is the conviction that one’s conception of good and plan of life is worth carrying out; the second is the confidence in one’s ability to fulfill those intentions. In other words, self-respect is self-confidence in both the ends and the means of one’s life. For Rawls, self-respect is the most important primary good because without it one will lose the desire to live in society. To enjoy selfrespect, we must pursue our life plan within the social framework embodying the principles of justice in compliance with our desires and abilities; what’s more, our activities must be esteemed by others as if these were their own goods. In a well-ordered society, while we are asked, as moral persons, to exchange feelings of mutual respect first among familiar colleagues in our community and then among strangers in the larger society, we can respond reciprocally to the expectations of others by the accomplishment of excellence that has the property of public goods. This is the crucial relationship between excellence and self-respect. I will make two critical comments on Rawls’s concept of self-respect. First, since his concept is connected with primary goods, it seems as though it were an ex ante, procedural, and instrumental prerequisite that people would need in order to live their life. In contrast, I introduce the concept of worthiness of living, which is based on a self-evaluation in a process of living and represents feelings of fulfillment in light of one’s intentions and abilities. In defining self-respect, Rawls might have used the concept of primary goods as a procedural instrument before the achievement stage to avoid the teleological connotation. But it is erroneous to link excellence with such a narrow conception of self-respect. If we expand the conception of self-respect to include both procedure and achievement, the attainment of equal self-respect must mean that every person ensures the worthiness of his life equally in terms of consequences in a just society. Second, Rawls’s concept of self-respect, unlike Kant’s, gives the impression that self-respect is secured by just institutions based on the rights

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to equal respect and consideration; in other words, the requirements of justice are fulfilled so that a person can have confidence in his own plan and abilities. However, is it true that the rights to equal respect and consideration should achieve self-respect and worthiness of life? One must devote considerable efforts toward self-realization if the self-evaluation that one is worthy of respect is to be made. The rights are only a premise of self-respect. One’s abilities secured by those rights should be employed to achieve something through social practice. As Kant’s analysis shows, efforts toward excellence are duties. The underlying idea of liberal perfectionism is that autonomy can lead to self-respect only if it achieves excellence. This relationship constitutes the nature of moral persons in that autonomy and self-respect are combined through the medium of excellence to realize moral persons. Perfectionism and Liberalism Proceeding from the relationship between autonomy and self-respect, I will argue that perfectionism and liberalism do not contradict each other. In deriving his principles of justice, Rawls claims that the primacy of right over good is the basic thesis and formulates a conception of justice that permits a plurality of values to coexist. He rejects perfectionism along with utilitarianism because it regards the achievement of a specific good as the norm of social institutions (Rawls 1999a, pp. 285–92). The promotion or oppression of specific ways of life, he fears, involves paternalistic interference by the state and unfair treatment in terms of resource allocation. But why is the desire of all people for excellence and human flourishing contrary to justice? This desire embodied in moral persons should be defended on liberal and democratic grounds. Rawls defines perfectionism as ‘the sole principle of a teleological theory directing society to arrange institutions and to define the duties and obligations of individuals so as to maximize the achievement of human excellence in art, science, and culture’ (Rawls 1999a, pp. 285–6). This corresponds to Hurka’s broad perfectionism. In a critical context, Rawls also writes: In order to arrive at the ethic of perfectionism, we should have to attribute to the parties [in the original position] a prior acceptance of some natural duty, say the duty to develop human persons of a certain type and aesthetic grace, and to advance the pursuit of knowledge and the cultivation of the arts. But this assumption would drastically alter the interpretation of the original position. While justice as fairness allows that in a well-ordered society the values of excellence are recognized, the human perfections are to be pursued within the limits of the principles of free association. (Rawls 1999a, p. 289)

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Whereas in discussing the relationship between excellence and self-respect Rawls admits that excellence in the sense of narrow perfectionism is the good everyone wants to have, in the passage just quoted he interprets perfectionism as relevant to specific fields of activity such as the arts, science, and culture and shifts implicitly to broad perfectionism. Incidentally, he admits that certain political virtues represent the ideal citizen in a democratic society – such as civility, tolerance, and trust – but insists that acknowledging these virtues does not lead to perfectionism as a comprehensive doctrine (Rawls 1993, pp. 194–5). In the two contexts relating to perfectionism, Rawls is inconsistent. On the one hand, he lists perfectionism (along with utilitarianism and his principles of justice) as an object of choice in the original position, so that the acceptance of perfectionism may mean the refutation of his principles of justice. Consequently, he rejects perfectionism as a comprehensive doctrine. On the other hand, he links the concepts of excellence and virtue to the concept of self-respect, the core of his moral theory. Excellence consists not only of political virtues, as he admits, but also of a variety of human virtues. Perfectionism, or the ethics of excellence and virtue, requires us to improve our abilities, to heighten the value of our existence, and to promote the genus good. Kantian Rawls has to accept this thesis. Let us resolve Rawls’s ambivalence and explain how perfectionism is consistent with his theory of justice. It is reasonable to say that liberal moral theory should provide merely a neutral framework of society without making judgments about plural conceptions of the good. But neutrality among conceptions of the good does not contradict the positive encouragement of all fields of social practice to permit human beings to flourish. Rawls’s argument regarding perfectionism is self-contradictory: whereas he admits that self-respect is a primary good, he treats human development, which is the substantive content of self-respect, as a specific category of good. This is because he fails to link the narrow version of perfectionism with the broad one; or, in my terminology, because he fails to coordinate the ‘virtue–existence–human nature’ approach with the ‘virtue–practice– community’ approach. By putting a veil of ignorance on various conceptions of the good, he rightly moves from the world of ‘individual good’ to the world of ‘universal right.’ Perfectionism concentrates attention on the world of ‘universal good’ under the same veil without denying the priority of ‘universal right.’ The universal good of perfectionism is not an aggregate of individual good in utilitarianism. Though it might be termed ‘abstract good,’ I call it ‘cultural value’ (see Chapter 1, section 1.4). In moving from the world of good to the world of right, Rawls proposes that primary goods are all-purpose means for developing a sense of justice as well as for pursuing any conceptions of good. From our point of view,

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primary goods are, so to speak, all-purpose means for abstract good or cultural value. Rawls applies the idea of primary goods to the original position in order to define procedural justice in terms of the input or procedural aspect of human activities in society. Perfectionism is concerned with the achievement of abstract good or cultural value in terms of the output or consequential aspect of human activities that Rawls ignores. Perfectionism as the ethics of virtue is consistent with the ethics of justice in that both the input and output of human activities in society are under a veil of neutrality. Let us further explore this liberal thesis of perfectionism from the viewpoints of theory and institution to ensure that it does not contradict Rawls’s view. The Moral and Institutional Bases of Perfectionism The moral-theoretical basis for this thesis of perfectionism is provided only by the autonomy and self-respect of persons, who are equipped with two moral powers: the rational and the reasonable. The model of parties in the original position is moral persons in a well-ordered society. The conceptions of the good held by moral persons are not given desires but chosen in the light of enlightened desires based on knowledge. Moral persons are ‘dominant selves’ revising ‘subordinate selves.’ To live life freely according to how one happens to believe is not true liberty. It is possible that one pursues wrong and foolish objectives within a given cultural structure. Man should change his way of life, and, if possible, the social circumstances that condition his life, through his own efforts. This is explained by the conception of positive liberty (see section 3.1 above). Autonomy of moral persons is not only freedom to pursue specific conceptions of good but also freedom to doubt, to examine, to criticize, and to revise them, because conceptions of good must include freedom to develop human character and abilities. In doing so, a person can evaluate whether he has accomplished the duties of his own perfection and win selfrespect. It is because of another qualification of moral persons, that is, the requirement of fairness or reasonableness, that moral theory is constrained from considering specific conceptions of good and is only allowed to address the ‘universal good’ as the pursuit of excellence. If not directed by the idea of excellence, the concept of moral persons embodying autonomy and self-respect is incomplete. Rawls does not deny that the pursuit of perfection is a task of public policy, but he does deny locating perfectionism in the same position as his theory of justice. The fundamental social framework he designed on the basis of his two principles of justice consists of three kinds of institutions that guarantee (1) equal basic liberties, (2) fair equality of opportunity, and

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(3) a social minimum of welfare respectively (Rawls 1999a, p. 243). The government has several branches for the administration of these institutions; referring to Richard Musgrave’s theory of public finance, Rawls identifies five branches of government: the allocation, stabilization, transfer, distribution, and exchange (Rawls 1999a, pp. 243–51). The transfer and distribution branches are concerned with the expenditure and revenue of income redistribution respectively. The exchange branch is relevant to the present discussion. According to Rawls, this branch of the government is run by the principle of efficiency rather than justice. If people think that the public provision of certain services is desirable, they will pay taxes and receive the services in the form of public expenditures, which include public goods and merit goods. Rawls notes: ‘Public funds for the arts and sciences may be provided through the exchange branch’ (Rawls 1999a, p. 291). We can confirm that the burden of taxes for cultural activities as the most symbolic form of excellence and perfection in a democratic society is not problematic for the liberal theory of justice. Summing Up The discussion in Part I began by assuming that the concept of good constitutes the boundary between the worlds of the economy and morality and is located at the interface of three values: efficiency, justice, and excellence (see Figures 1.3 and 1.4 in Chapter 1). The subsequent analysis of values has shown how the worlds of the economy and morality are integrated. The simple view of the economic world held by economists is dominated by the notions of good (utility) and efficiency; the economic world was believed to consist of the production of goods (commodities) from resources and of good (utility) from goods (commodities). Introducing the essential elements of the moral world, that is, right (justice) and virtue (excellence), into the economic world has transformed this view. Figure 3.1 shows that the simple view of the economic world (consisting of the ‘resources–goods–utility’ relationship) is modified in several ways so as to be integrated with the moral world. First, Rawls’s theory of justice, which proposed that the concept of ‘primary goods’ be located between resources and good (utility), raised the issue that the distribution of primary goods was the concern of justice. Sen criticized Rawls for committing the error of fetishism and introduced the concept of ‘capabilities’ between goods (commodities) and good (utility); he regarded the equality of capabilities as the central issue of justice. Finally, perfectionism, as the ethics of virtue, holds that the promotion of capabilities in terms of inner traits and the achievement of excellence in terms of social practice is the dual goal of social arrangements. This approach highlights the cultural

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Resources

Primary goods

Capabilities

Achievement of excellence

Well-being Figure 3.1

Integration of the economic and moral worlds

value that is implicit in a particular form of social practice and is transmitted to future generations. It is unnecessary for these three theories to be concerned with the dimension of good (utility), as is the case with utilitarianism. Traditional economic thinking views the economic process, first, as producing goods, income, or gross national products from resources and, second, as producing utility, pleasure, or happiness from goods or income. Ethics does not take as its object of investigation a different world from the one economics studies; it observes the same, real world through a different glass. Through the glass of economists, the entire relationship between resources and wellbeing emerges merely as the process of ‘efficiency’; but through the glass of moral philosophers ethical notions relating to ‘justice’ and ‘excellence’ such as primary goods, capabilities, and achievement of excellence are inserted between resources and well-being, as shown in Figure 3.1. As no economy exists without morality, so there is no morality without an economy. Whereas morality provides rules on how to live, it is the economy that produces the means of livelihood. The strength of the economy is its real mechanism for producing goods and well-being from

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resources; the weakness of the economy is the absence of values that are morally superior to efficiency, such as justice and excellence, within the economic realm. It is the ethics of right (justice) and virtue (excellence) that cultivates livelihood enabled by the economy for well-being. Thus normative economics must be concerned with the efficient allocation, just distribution, and perfectionist utilization of scarce resources.

NOTES 1. John Rawls writes that his theory of justice consists of ‘combining liberty and equality into one coherent notion’ and of coordinating the conflict between the two concepts (Rawls 1982b, p. 41). 2. For anthologies on the concepts of liberty, see Pelczynski and Gray (1984) and Miller (1991). For collections of essays on Berlin’s intellectual legacy in the broader perspective, see Margalit and Margalit (1991) and Dworkin, Lilla, and Silvers (2001). 3. For an anthology on moral luck, see Statman (1993). 4. For a bibliography of the debate, see Rasmussen (1990), Avineri and de-Shalit (1992), Mulhall and Swift (1992), Delaney (1994), and Etzioni (1995). 5. For the contemporary significance of the German Historical School, see Shionoya (2001). 6. Rawls writes: ‘The essential idea is that we want to account for the social values, for the intrinsic good of institutional, community, and associative activities, by a conception of justice that in its theoretical basis is individualistic. For reasons of clarity among others, we do not want to rely on an undefined concept of community, or to suppose that society is an organic whole with a life of its own distinct from and superior to that of all its members in their relations with one another. Thus the contractual conception of the original position is worked out first . . . From this conception, however individualistic it might seem, we must eventually explain the value of community. Otherwise the theory of justice cannot succeed’ (Rawls 1999a, pp. 233–4). 7. For major anthologies and special issues of journals on virtue ethics, see Kruschwitz and Roberts (1987), French and Uehling, Jr (1988), Social Theory and Practice (1991), Chapman and Galston (1992), Crisp (1996), Crisp and Slote (1997), Statman (1997), Social Philosophy and Policy (1998; 1999), and Darwall (2003).

PART II

Institutions

4.

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SYSTEMS OF INFORMATION, INCENTIVES, AND OWNERSHIP

The Ethics of Institutions Part I surveyed the broad frontiers of contemporary moral theory and discussed the structure of such values as efficiency, justice, liberty, and excellence to illuminate the relationship between the economy and morality on the dimension of values. Part II will be developed on the dimension of the institutions that virtually embody and implement these values within the structure of society. The objects of our investigation are three foremost systems, namely ‘capitalism, democracy and social security,’ the totality of which we call the welfare state. In view of the two meanings of institution, that is, a social system and social norms (see Chapter 1, section 1.2), ‘capitalism, democracy and social security’ each has an aspect of the social system as well as an aspect of social norms, the latter comprising ‘law, morality, and custom,’ and is characterized in particular by morality as the principle of norms. It is the task of Part II to explain the relationship between the social system and norms with regard to each of the three institutions. Culture represents a style of life underlying various fields of social activity, namely economy, politics, law, technology, science, the arts, education, religion, morality, and so forth, and involves the cultural values that comprehensively reflect human interests (see Chapter 1, section 1.4). Although overlapping with the two meanings of institution, culture features achievements in various fields of social practice. Whereas institutions are the framework of society, culture is the achievement of society. Culture includes a plurality of factors and values and is not susceptible to a single standard of evaluation. It is, as it were, an entity of meaning. Thus it follows that a social system is seen from the viewpoint of value as well as the meaning it embodies. Our system of ethics, the ethics of ‘good, right, and virtue,’ addresses ‘act, rule, and existence’ respectively and provides the normative standards for evaluating a social system. The rules or institutions of a society, by 133

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shaping a particular pattern of ‘good, right, and virtue,’ inform its members about how to do (act) and to be (existence). The ethics of institutions gives a configuration of values for particular institutions and their cultural achievements. This chapter focuses on the market system of capitalism. The Efficiency and Moral Property of Markets The basic economic problems of society always include the allocation of resources and the distribution of income. The former is concerned with how to produce various goods and services by allocating given resources to different lines of production, and the latter with how to distribute income, produced from resources, among different persons. Capitalism is an institution that solves the two questions simultaneously by using the market mechanism; it is characterized by an institutional apparatus that supports the function of markets, such as exchange, competition, price, private enterprise, and private ownership. A market economic system allows free activities of decentralized economic agents including private enterprises and households. The opposite is a centralized planning economic system, observed in socialist and communist countries, in which the two basic economic problems are solved through government directives. In market economies, which employ the institutional arrangements of a price mechanism and private property that are not available in the typical planning economies, goods are produced and distributed by autonomous coordination based on contractual forms of market exchange. Insofar as market exchange induces the division of labor and is based on the autonomous choice of persons and competition among them, it is almost intuitively evident that the market system satisfies ‘freedom and efficiency’ at the same time. Logically, the so-called fundamental theorem of welfare economics demonstrates the equivalence between competitive equilibrium and Pareto optimality under certain technical assumptions. On the other hand, the market system is often criticized for its failure to achieve ‘justice and excellence,’ both of which are not inherent values of markets. The relationship between freedom and efficiency, however, is not as simple. What conditions must prevail for individual self-interest to lead to the satisfaction of the public interest, such as a high income for society as a whole? Adam Smith, the so-called father of economics, left us the immortal phrase to economics: He [every individual] generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest

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value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. (Smith [1776] 1925, vol. 1, p. 421)

This is the famous metaphor of the ‘invisible hand,’ suggesting that the operation of individual self-interest in markets has the unintended consequence of social affluence. For Smith, coordination of private interest and public interest in free markets seemed to be the mysterious and beneficent work of God, the creator of the world; he thought that the task of economics was to uncover this hidden order. In the history of economics, the debate on the meaning of the ‘invisible hand’ and the relationship between the economy and morality has focused on Adam Smith. Particularly at issue has been the consistency between his two works The Theory of Moral Sentiments (1759) and The Wealth of Nations (1776). It is indeed fascinating to investigate the relationship between the economy and morality with special reference to Adam Smith.1 But here we remain at a theoretical level and refer to the fundamental theorem of welfare economics that is regarded as a formulation of the ‘invisible hand’ thesis. The fundamental theorem of welfare economics actually includes two theorems: (1) a competitive equilibrium is Pareto-optimal, and (2) any Pareto-optimal equilibrium can be achieved via a competitive mechanism. If the maximization of the national income envisaged by Adam Smith as in the public interest is interpreted in terms of Pareto optimality, the ‘invisible hand’ thesis is formulated as the first theorem. Then, what assumptions are involved in the first theorem? Especially from an ethical point of view, there is a question of whether or not any ethical assumption is presupposed in the theorem; in other words, is it possible to derive Pareto optimality from the assumption of self-interest unrestricted by any ethical norms? The assumptions in the fundamental theorem of welfare economics are (1) perfect competition, (2) the universality of markets, and (3) the convexity of preferences and technology. Perfect competition involves the conditions of a large number of firms and consumers, undifferentiated commodities, the freedom of entry and exit, and perfect information. The universality of markets means that property rights are established for all goods and resources exchanged in markets and that all benefits and costs originating from the exchange are settled between the agents by money. Thus public goods, future goods, and externalities do not exist. Convexity corresponds to the law of diminishing marginal utility and the law of diminishing marginal productivity, to use more familiar terms.

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Market transactions by selfish persons who are unfettered by the constraints of ethical norms thus do not lead to Pareto optimality. The first theorem is established just because the fundamental theorem implicitly assumes certain ethical norms (Schultz 2001). Whereas assumptions (1) and (3) are of a technical nature, (2) implies moral conditions in the disguised form of the absence of externalities. Externalities, whether in consumption or production, denote all the relations that agents do not take into account in their calculations of market transactions, although these transactions affect other persons indirectly. If externalities do not exist, all economic activities and their effects are internalized in market transactions. The universality of markets means that interpersonal economic relations involving benefits or costs are all internalized by monetary transactions in the network of markets. Consequently, markets pervade all economic relations universally so as not to produce spillover effects outside the framework of markets. To establish the universality of markets two methods are utilized. First, all objects of consumption and production and their effects become commodities and marketed. But since this means expanding the scope of commodities almost indefinitely, it is not possible in practice. Second, the remaining externalities are reduced by the stipulation of institutions including ‘law, morality, and custom.’ The two methods are connected in such a way that moral conditions limit the scope of commercialization and markets – for example, the prohibition of pollution, drugs, and prostitution. In the world of markets assumed by the fundamental theorem of welfare economics, a variety of illegalities or immoralities, including fraud, theft, menace, and default, which arise as negative externalities of economic activity, are all excluded by law. Harms to others due to negligence are also redressed. For markets to achieve efficiency, they require not only perfect competition and convexity, but also expansion of their scope and/or the observance of ‘law, morality, and custom’ to control externalities. Otherwise, a free play of self-interest will bring about negative externalities and upset Pareto optimality. That moral norms are needed to ensure market efficiency is not so much moral intuition as economic logic. On the other hand, there is also a limit to the internalization of positive or favorable externalities. The remaining positive externalities, however, might act as a lubricant in social relations and represent the virtues, excellence, and culture of society. Recognizing that the market is not a morally free zone, we must make sure that an analysis of the moral properties of capitalism has a robust framework to address the relationship between institutions and values. Below is an attempt to apply the three ethical approaches developed in Part I to explore ‘rule, act, and existence’ in capitalism. The key words of the three approaches are ‘information, incentive, and ownership’ respectively.

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We will start with the concept of market as a system of ‘information, incentive, and ownership,’ all of which are a means for coordinating resource allocation. It is appropriate to begin an assessment of the ethics of markets – that is, the moral standing of markets – with an analysis of Friedrich von Hayek’s system of information. His notion of an information system is an ingenious formulation of the system of ‘efficiency and liberty,’ the very strength of markets. Hayek’s Information System – Ignorance, Spontaneous Order, and Rules According to Hayek, ‘a condition of liberty in which all are allowed to use their knowledge for their purposes, restrained only by rules of just conduct of universal application, is likely to produce for them the best conditions for achieving their aims’ (Hayek 1973, p. 55). His characteristic view is that the value of liberty lies in the efficient use of knowledge or information and that an institutional device for realizing it is the impersonal price mechanism. In this way, Hayek avoids the defect in political philosophy that treats liberty in the abstract without reference to any concrete institutions, on the one hand, and sheds light on the role of knowledge or information that has been neglected in economics, on the other. He presents a unique way of viewing society through the ‘liberty–information–market’ nexus, which combines liberty and market, or morality and economy, by the concept of information. Based on this view, he criticizes the system of planning and coercion in defense of the system of liberty. For him, liberty is the ultimate source of all moral values. His system of liberty consists of three pillars: (1) a theory of knowledge based on ignorance, (2) spontaneous order, and (3) the rule of law. First, Hayek distinguishes between two basic methods of social observation: constructivist rationalism and evolutionary rationalism (Hayek 1973, ch. 1). In constructivist rationalism, all human institutions are constructed by human reason, will, and intention oriented to certain ends. Evolutionary rationalism, on the other hand, regards social institutions as the unexpected, unintended consequences of individual action through the evolution of tradition and customs. Hayek once called the two views ‘false individualism’ and ‘true individualism’ respectively (Hayek [1946a] 1949). Hayek thus rejects constructivist rationalism and supports evolutionary rationalism. Individuals understand only a small portion of the social phenomena around them, and the government cannot collect all relevant knowledge and organize society in a comprehensive way. If a society works well, it is not because its overall goals are planned and realized based on the knowledge of end-and-means relationships, but because although people only try to utilize local knowledge to achieve their own ends, the unintended

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favorable results in terms of the welfare of the whole society are produced by interactions among the participants. The belief that a society can be organized by reason belongs to socialism and totalitarianism and is criticized as the ‘pretence of knowledge’ (Hayek [1974] 1978). The lack of collective knowledge, or ignorance, is the underlying idea of Hayek’s theory of liberty. Granted that the social order cannot be based on a rational plan but is the outcome of free and diverse activities of many people, we have to ask what is a spontaneous order and what are general rules? The second pillar of Hayek’s argument is spontaneous order. He distinguishes between two kinds of order: one that is constructed purposively, commanded, and coerced by man, that is, an order of organization, and one that is shaped spontaneously and has grown under abstract general rules, that is, spontaneous order (Hayek 1973, p. 37). The order of liberty is a spontaneous order; it is shaped through the interaction of plans and the behavior of people under anonymous rules commonly given to them. The goals of spontaneous order are not intended for society as a whole, but allow people to pursue their diverse aims based on their own knowledge. By contrast, organizations like business firms, households, and various associations have their own agenda based on centralized decision-making, and its members obey its directives to achieve its objectives. Hayek admits that such intermediate organizations are located between individuals and society. A society as a spontaneous order includes many kinds of organizations. A totalitarian society is such an organization that has extended to the scope of the whole society. Hayek calls the orders of coercion and liberty taxis and cosmos respectively. Regarding the limits of reason, our social scientific knowledge is confined to the abstract and general character of a spontaneous order and cannot relate to concrete situations of particular persons. When Hayek talks about the efficient use of knowledge, he is referring not to scientific or statistical knowledge but to subjective knowledge about preferences, technology, and resources at a certain time and place. Subjective knowledge is dispersed among individuals and embedded in their minds as implicit knowledge. Hayek argues that the economic problems of society are concerned not with allocating given resources under given preferences and technology, as welfare economics assumes, but with discovering and utilizing knowledge that, although not acquired objectively and totally, is crucial to the resolution of the resource allocation problems (Hayek [1945] 1949). If the data are already known objectively and totally, market equilibrium is simply a logical problem. The economic problem is, by contrast, to discover and collect the required data as such through a social system and to solve the allocation challenge by some mechanism that communicates the information. This is the concept of the ‘market as a discovery procedure’ (Hayek [1968] 1978).

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From this perspective, the price system in markets is interpreted as the universal mechanism that transmits necessary information to individuals. People behave competitively in response to the price system according to the limited information they have at their disposal. Competition in markets means that people behave as ‘price takers’ in the sense that they cannot manipulate prices artificially. Through competition, the information of economic scarcity implied by the given data is injected into the price system. Thus prices first become ‘barometers’ that reflect the scarcity of goods and resources, then become ‘parameters’ that coordinate the demand and supply of goods and resources. The price system does not work as an adjustment or coordination mechanism for resource allocation until it fulfills the functions of collecting and transmitting information. Because the knowledge of individuals is imperfect, partial, and limited, the price mechanism, as automatic and universal machinery for information disposal, is required for the coordination of human activities on a social scale. This is the market economy as an ‘information system.’ Chapter 1 showed that economic values have the dual universal functions of transforming diverse economic interests of individuals from quality to quantity and from subjectivity to objectivity. It is the market price that actually carries out these functions. Economic values, with the aid of the price mechanism, coordinate and adjust the economic world. This picture of markets also suggests that the functioning of the economic world through the price mechanism only partially achieves the well-being of people because well-being or the good life is not attained through economic interests and values alone. Like language and money, the market mechanism is an archetype of a spontaneous order. Although the efficiency of markets as an instrument of resource allocation is emphasized in economics, Hayek pays attention to market efficiency in collecting and transmitting information as the antecedent of resource allocation. Informational efficiency expands the opportunities for individuals to use vague and limited knowledge scattered throughout the world for their own purposes; and this is nothing more than Hayek’s conception of freedom. Therefore, ethically speaking, the market mechanism can be defended as an institution that is instrumental in achieving economic freedom. The market system is an impersonal method of social coordination through mutual interaction among participants rather than through unitary ideas of a central planner on the relative importance of aims and benefits made possible by economic resources. Since markets as a spontaneous order are not an indefinite entity but exist on the basis of definite rules, the rules required for markets are crucial to the scope of liberty. This is the third pillar of Hayek’s idea of liberty.

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‘Liberty’ is liberty under the rule of law and has a close relationship with the law. The law does not mean a mere positive law but a natural law. In his definition of liberty, Hayek calls the law ‘rules of just conduct.’ These rules are, first, procedural rules independent of goals and do not anticipate specific results; they merely provide conditions that allow each individual to pursue his own goals effectively. In a free society, there is no rule for a single objective. Second, these rules only stipulate the abstract general nature of order and do not determine specific contents and results as the desiderata. The general rules will be applied to everybody independently of particular cases and persons. This safeguard ensures that law does not become coercive but protects liberty. Hayek rejects the concept of social justice as a mirage, because it is wrong to talk about justice or injustice with regard to concrete results of distribution given the society of a spontaneous order, not because justice as a general rule should be denied (Hayek 1976). What he calls the ‘rules of just conduct’ is merely procedural justice. By contrast, in a centralized organization justice or injustice is determined with regard to what is believed to be a desirable state of distribution. Corresponding to the distinction between organization and spontaneous order, Hayek distinguishes between command and law and applies the terms thesis as the law of legislation and nomos as the law of liberty respectively (Hayek 1973, chs 5 and 6). As we have seen, however, there are different conceptions of nomos or justice. Hayek’s conception of the ‘rules of just conduct’ is subordinate to the notion of liberty that is attained by the market system. Evaluation of Hayek’s Thesis In the three pillars of his theory of liberty, what Hayek regards as the peculiarity of markets is the ‘system of information’ that is restricted only by the general rule of justice and has evolved spontaneously. His conception of the rules of just conduct will be identified below in the discussion of the welfare state (see Chapter 6, section 6.3). Here, from the viewpoint of our system of ethics, we shall try to evaluate his theory of markets characterized as the ‘liberty–knowledge– markets’ nexus. In the light of the three objects of moral valuation, that is, ‘institution, act, and existence,’ Hayek primarily characterizes the ‘institution’ of a capitalist economy as the ‘system of information’ and appraises it as conducive to the realization of liberty through informational efficiency. His argument does not directly touch on the nature of the ‘act’ and ‘existence’ of agents in capitalism. I argue, however, that the institution of information disposal does not exhaust the functions of markets; a comprehensive evaluation of the ethics of markets will require addressing not only the objective

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‘institution’ of resource allocation but also the subjective entity involving the ‘act’ and ‘existence’ of human agents under that institution. As asserted below, an understanding of markets in terms of the ‘act’ means an analysis of markets as a ‘system of incentive,’ and that of markets in terms of ‘existence’ means an analysis of markets as a ‘system of ownership.’ Even if we limit ourselves to the ‘information system,’ markets are not the panacea that Hayek presupposes. Indeed, his argument presents a unique viewpoint – to combine markets and morality (liberty) and to defend the liberty of decentralized agents (negative liberty) by regarding markets as the mechanism for collecting and transmitting information – but the limitations of his theory lie in the extreme simplicity that characterizes his view of the system of information. The price system working as the vehicle of information disposal is not so frictionless as he supposes; there are costs in using the price mechanism. These range from stipulating property rights to gathering information, negotiating, contracting, and implementing transactions. These costs are called ‘transaction costs.’ When transaction costs are high, market transaction does not occur. Even if people want to make an informed decision by utilizing information, often information does not exist or is imperfect or asymmetrical between the parties to the transaction so that prices cannot perform the barometric and parametric functions expected of them. The conception of markets as a system of information assumes the existence of property rights, universality of markets, and perfect information; if these assumptions do not hold, the usefulness of markets as a system of information will be limited. For this reason, markets need the support of nonmarket systems. What problems are involved in the ‘act’ and ‘existence’ aspects of individuals in the market system that Hayek does not address? We might ask why people in markets are concerned with the information system. Hayek does not consider this question. People inject information available to them into the price system not because they want to contribute to the social purpose of coordinating resource allocation. They simply act according to their own motivations, and the price system records their behavior externally and mechanistically as if it were an observation device and sends the data to people universally, although this system cannot depict various human behaviors but only record a single number (price) as if it were a thermometer. To investigate the interior of human actions it is necessary to deal with the ‘system of incentives’ that characterizes competition in markets. This will lead us to an analysis of the agents in markets, invoking the key words ‘liberty–incentive–market.’ Whereas the concept of markets as a ‘system of incentives’ is familiar to economists because it is formulated as the standard economic model of maximizing utility and profits, it is necessary to examine the broader ethical implications of human motivation.

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In his criticism of economic theory, Hayek argues that if data are assumed to be already known and the existence of perfect competition and complete knowledge is assumed as in mainstream economics, there is no need to differentiate competition (Hayek [1946b] 1949, p. 96). He also mentions that if we already know who would do best in sports or in examinations, it would be pointless to arrange for competition (Hayek [1968] 1978, p. 179). To follow this metaphor, participants are motivated to win a game by exerting their mental or physical strength, not to announce and spread the results of competition as information. The market process as the Hayekian ‘system of information’ is the outcome, manifested on an objective dimension, of the ‘system of incentives’ that works on a subjective dimension. Hayek writes that ‘competition is essentially a process of the formation of opinion: by spreading information, it creates that unity and coherence of the economic system which we presuppose when we think of it as one market’ (Hayek [1946b] 1949, p. 106). This description is one-sided in that it looks at only the external outcome of the competitive process. Hayek says that it is important to discover information about the data of an economy before equilibrium in resource allocation is attained, and that competition is the process of this discovery. I maintain, instead, that it is important to identify the motive or incentive that drives people to competition before information is discovered. Thus the market has a subjective aspect, that is, the ‘liberty–incentives– market’ nexus, and an objective aspect of market, that is, the ‘liberty– knowledge–market’ nexus. As objects of moral valuation, the former corresponds to the ‘act’ of agents in markets, whereas the latter corresponds to the ‘rule’ of the market system. Furthermore, from the viewpoint of our system of ethics, I propose a third object of moral valuation relating to markets, that is, the ‘liberty–ownership–market’ nexus, which is concerned with the ‘existence’ of agents in markets. I call this third aspect of markets the ‘system of ownership.’ Let me explain how the following two issues relating to the ‘system of ownership’ spring from the ‘system of incentives.’ First, as the premise of competition based on private incentives, the ownership of objects that can be exchanged must be predetermined. Only by the stipulation of ownership can the universality of markets for economically valuable objects be established; consequently, these objects are all brought into markets and the price system prevails universally to ensure the efficiency of markets. Second, as a result of competition, the agents must own the outcome of the economic activities in question according to their merits. This is also guaranteed by the ‘system of ownership.’ Whether the market system is free, efficient, just, or excellent depends on how it perceives the system of ownership. The ‘existential’ aspect of man in

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the capitalist economy refers not only to the private ownership of external objects but also to the nature of human existence based on the notion of self-ownership. What kind of human existence does the capitalist system presuppose? The Ethical Foundations of Ownership In viewing capitalism as a ‘system of ownership,’ the basic ethical question concerns the justificatory ground of private ownership. There are various approaches to this issue, including first occupancy, labor input, utilityefficiency, moral character, natural law, and liberty.2 Broadly speaking, however, utility theory and rights theory are distinguished based on their basic distinction in moral theory. The utility theory of property is represented by utilitarianism, according to which property rights must be determined to maximize their total utility to society. Private ownership of those resources, which are important to the happiness of people, enhances their expectation of happiness, encourages their efforts, and ensures the private possession of the outcome. Although the utilitarian contention that rights are justified by the outcome in terms of happiness is straightforward as a philosophical thesis, the content of the argument in terms of institutional arrangements is superficial. The economic theory of property rights, based on welfarism, develops a more rigorous argument in terms of Pareto efficiency. The basic propositions of this theory are that (1) the establishment of property rights for all valuable objects ensures the efficient use of resources and (2) property rights have historically evolved to respond to the social need for efficiency.3 Property rights are a kind of social institution. Ownership of an object enables a person to do what he wants with the object and raises the expectation that others will not interfere. Since the actions of an individual based on such possession affect others, property rights not only protect the domain in which he is allowed to act freely in the use of his property, but also determine the state of positive and negative externalities that his act imposes on others. When laws or morality prohibits harm to others, transaction costs are logically indefinite. Otherwise, if the parties concerned could negotiate or contract for the compensation of the costs or benefits of the external effects, transaction costs would be internalized. Because a transaction entails a transfer of property rights, the principal function of property rights is to offer an incentive to internalize the externalities. But even with property rights, if transaction costs are higher than the benefits of internalization, a transaction will not occur and the externalities will remain. The externalities thus represent a so-called market failure.

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On the other hand, if transactions based on property rights take place, efficiency is attained, but importantly, the attainment of that efficiency is independent of the distribution issue of who should own the rights. The Coase theorem states that the initial allocation of legal entitlements does not matter from the viewpoint of efficiency so long as they can be freely exchanged (Coase [1960] 1988). Consider a case of pollution, when fires caused by smoke and sparks from a train engine destroy crops growing along the railway line. To achieve efficiency, either the railway company can compensate the farmers for the damage to their crops or the farmers can compensate the railway company for the loss caused by reducing the operation of its trains. In other words, misallocation of legal entitlements will be redressed in the market by free negotiation and exchange. The way to realize efficiency is to define the entitlements clearly and to remove impediments to the free exchange of the entitlements. If we describe the impediments as the existence of transaction costs, the Coase theorem means that the initial allocation of legal entitlements does not matter from the viewpoint of efficiency so long as the transaction costs are zero. Of course, how the entitlements are distributed among people is very important from the standpoint of justice. The view of property rights expounded by contemporary economic theory is concerned with the relationship between law and economics solely from an efficiency perspective. Instead, I prefer to focus on the rights-based approach to property, which provides a restrictive framework for efficient institutions. The rights theory consists of two schools of thought: that of Locke and Nozick and that of Kant and Rawls. If we interpret both theories in terms of the concept of ‘self-ownership,’ property rights can represent not only rights to physical or external objects but also rights to the personality, life, and body of persons. Moreover, as we saw in Chapter 3, section 3.2, the concepts of liberty and justice are functions of self-ownership, and the rights to external properties are established as an extension of the rights to internal entities such as the personality, life, and body of the self in both theories. Libertarian theory along the lines of Locke and Nozick derives the rights to external properties directly from the rights to the personality, life, and body of persons (self-ownership in the narrow sense), and identifies the totality of the two property rights (self-ownership in the wide sense) as natural rights. It is obvious that this view defends the free market system based on meritocracy. However, the contractarian theory of justice along the lines of Kant and Rawls can also accept the notion of self-ownership in the narrow and wide sense. The fundamental difference between the two theories lies in whether it is possible to separate the ‘owning self’ and the ‘owned self,’ or the ‘dominant self’ and the ‘subordinate self.’ The libertarian conception of persons is that they are free because personality is

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inseparable from all their bodily attributes and faculties and all their owned external properties. In contrast, contractarianism asserts that the internal and external endowments of people are accidental; therefore they are not the antecedent of moral persons, and the two selves should be separated. Since the separation of the ‘owning self’ and the ‘owned self’ holds in the context of self-ownership in the narrow sense, private ownership of external objects is not necessarily justified as the outcome of the dominant self. In Rawlsian thinking, the owning self is merely a moral person; the external properties she is allowed to possess must make her a moral person as far as her actions and existence are concerned. This is what Rawls called ‘social primary goods.’ In light of his principles of justice, the objects of self-ownership in the narrow and wide sense are not equivalent to all the properties originating in natural and social contingencies. Self-ownership, then, is not self-evident; there are different conceptions of self-ownership in accordance with the difference between negative and positive liberty. The difference between the two conceptions of liberty depends on what kind of society, and consequently on what kind of individuals are presupposed. The notion of personality as the existence in which we are interested comes under the domain of virtue ethics rather than that of rights and justice ethics. Contrary to the notion of ownership as the ‘outcome’of industry and productivity, which underlies Locke and Nozick’s theory of property, the idea of ownership as the ‘means’ for development of personality features Hegel’s theory of property; the two are opposite theories within rights theory.4 Possessive Individualism and Possessive Personalism What is the relationship between persons and ownership under the institution of capitalism as a system of ownership? The concept of ‘possessive individualism’ provides an answer. C.B. Macpherson labeled British political thought from Hobbes to Locke in the seventeenth century ‘possessive individualism’ and formulated the individualistic position that links individuals to society through the notion of possession (Macpherson 1962). The major theses of possessive individualism formulated by Macpherson are as follows (ibid., pp. 263–71). First, what makes a man human is freedom from dependence on the will of others, except for voluntary association with others that will benefit his own interest. Second, the individual is the proprietor of his own person and capacities, for which he owes nothing to society. Third, he may transfer his capacity for labor through a series of market relations with other proprietors of labor. Fourth, possessive individualism requires a certain social institution, namely a ‘possessive market society’ (ibid., pp. 53–61). In this society, unlike resource allocation

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based on status or custom, individual contracts in markets perform resource allocation. Based on the recognition that each individual’s capacity to labor is his own property and able to be transferred to another in markets, land, resources, and goods are owned as an extension of his body and labor. A market system becomes fully individualistic with the establishment of a labor market, in which the labor force is exchanged, rather than a mere commodity market. At the same time, an enterprise’s economic system is established, in which labor is utilized not for the sustenance of its proprietors but for production for markets through employment contracts. Fifth, a political society provides the same freedom for all, the protection of individual property in person and goods, and the maintenance of orderly exchanges. The conception of freedom or liberty in possessive individualism is based on the reduction of human ‘existence’ to self-ownership and freedom from another’ will. Individuals’ freedom from others is clearly demarcated and secured by self-ownership. Thus individuals are free by acquiring, owning, and using the results of their own labor. Whereas Hayek’s view of an information system argues that a man is free by using his own knowledge for his own purposes, the view of possessive individualism explains freedom as self-ownership. If a person’s knowledge is counted as one of his possessions, Hayek’s argument can be subsumed into possessive individualism. On the other hand, Hegel’s Philosophy of Right (1821) divides the development of norms and personality into three stages: abstract law, morality, and ethics in community. The last stage includes family, the civic community (capitalist market), and the state. Hegel thought that the right to property was essential because it entailed the development of personality: ‘A person has as his substantive end the right of putting his will into any and every thing and thereby making it his, because it has no such end in itself and derives its destiny and soul from his will. This is the absolute right of appropriation which man has over all “things” ’ (Hegel [1821] 1967, p. 41). To compare Hegel’s thought with possessive individualism, I will coin the phrase ‘possessive personalism.’ Hegel rejected the view that private property is an effective means to satisfy desires, because desires can also be satisfied by communal possession. Instead, private property is important not to biological needs but to the free will of human beings. He wrote: ‘The rationale of property is to be found not in the satisfaction of needs but in the supersession of the pure subjectivity of personality. In his property a person exists for the first time as reason’ (ibid., pp. 235–6). While property enables a person to occupy, use, or transfer objects, Hegel saw it as an embodiment or projection of personality into objects. Personality, by its combination with the external world through property, becomes objectivity beyond mere subjectivity and

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is incorporated into relations with others. Labor is not just a negative act to earn the means to satisfy desires, but provides people with education and self-realization. ‘It is part of education, of thinking as the consciousness of the single in the form of universality, that the ego comes to be apprehended as a universal person in which all are identical’ (ibid., p. 134). In other words, in the social practices of a civic community people learn the virtues of excellence, such as responsibility, prudence, independence, care and respect for others, beyond mere self-interest. For Hegel, the civic community enhances the subjective and particular satisfaction of desires to a kind of universality by means of social interdependence based on the division of labor and exchange in markets. By ‘universality’ he meant the ubiquity of absolute rights and law and of the price mechanism. A market founded on property rights is a process of cultivating subjectivity through the recognition of reciprocity. Here we find the perfectionist understanding of persons as the enduring stock and call it ‘possessive personalism,’ signifying a building up of personality by owning property. Hegel transformed the notion of the civic community as a ‘system of desires,’ namely a society in which possessive individualism dominates, into the process of educating personality based on the recognition of interdependence through the social network. This view opposes the assertion of possessive individualism that the individual is the proprietor of his own person and capacities, for which he owes society nothing. For Hegel, then, the civic community was only a passing stage; the state was the highest stage in which ethical ideals were realized. While in markets the rule of meritocracy caused poverty and inequality, families and corporations provided the ethical basis of the state by establishing themselves as communities. Through communities, the state carried out the administration of welfare policy. Thus individuals could live universal cooperative lives only in the organic state as a community. In this stage, the restriction of private property was required: The specific characteristics pertaining to private property may have to be subordinated to a higher sphere of right (e.g. to a society or the state), as happens, for instance, when private property is put into the hands of a so-called “artificial person” and into mortmain. Still, such exceptions to private property cannot be grounded in chance, in private caprice, or private advantage, but only in the rational organism of the state. (Ibid., p. 42)

In this stage we are confronted with Hegel’s system of coordinating the values of efficiency, excellence, and justice. Hegel’s tradition has something to do with the contemporary thought of communitarianism and virtue ethics, and we no longer need be concerned with the classics. We now

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proceed to the third aspect of the market economy, namely the ‘system of incentives,’ and pursue the ethics of competition.

4.2

COMPETITION AS A METAPHOR OF GAMES

What is a Game? Competition in markets is often compared to games in sports, and economic and social institutions are compared to the ‘rules of the game.’ Social activities can be conceived as games that competing participants play under certain rules. This illustrates the use of a metaphor in economic discourse. Metaphors make problems intelligible by reference to simpler and more familiar problems. Since economic reality is too complex to be comprehended on the spot, economists might hope to gain a vision of the economy from a metaphor of games before proceeding to a theoretical formulation. Games or matches usually occur not only in sports but also in cards, chess, mahjong, and the like, but we will consider sports here. Several aspects of a game in sports show interesting parallels with market competition:5 1. 2. 3.

4. 5.

6.

A game is a rivalry between individuals, or groups of individuals, who strive for something that all cannot obtain. A game is played according to rules that constrain the actions of players but allow them to compete for a victory or success. A game is a system of incentives and rewards based on self-interest. It presumes limited objectives that appeal to self-interest – victory, a prize, or fame. A game is based on the principle of merit. Players of outstanding merit win a victory, a prize or fame. The performance of players is determined by skill, effort, and luck, and it is important that the outcome is not decided entirely by chance. Nevertheless, the result of a game is unpredictable. A game is also a device for discovering the best performance and the techniques that produce it based on certain standards of comparison. Therefore, players require various degrees of skill and training.

At first sight, games are played merely to satisfy the players’ competitive instinct and desire to win, but through these motivations or incentives games unwittingly make players cultivate sportsmanship and learn social discipline. This is true of both professionals and amateurs. Thus, within and around the lures of a game are molded certain attitudes or ethos – for example, the pursuit of excellence, honor, and glory; courage and patience;

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fair play and adherence to the rules of the game; and teamwork and solidarity in the pursuit of common goals. These are the unintended consequences of sports and can be called their social purposes or meaning as distinguished from their direct motivations or incentives. Similarly, we can distinguish between the direct motivations and social purposes of market competition. It was Joseph Schumpeter who warned us against confusing the two. Regarding social phenomena generally, he argued: In observing human societies we do not as a rule find it difficult to specify, at least in a rough common-sense manner, the various ends that the societies under study struggle to attain. These ends may be said to provide the rationale or meaning of corresponding individual activities. But it does not follow that the social meaning of a type of activity will necessarily provide the motive power, hence the explanation of the latter. If it does not, a theory that contents itself with an analysis of the social end or need to be served cannot be accepted as an adequate account of the activities that serve it. (Schumpeter [1942] 1950, p. 282)

The well-known proposition in economics that economic activities consist of the efficient allocation of scarce resources describes the social ends or meaning referred to here. The direct motivation that provides the ‘motive power’ of individuals’ activities in markets is the pursuit of private interest, not the efficient allocation of resources. When under certain moral norms the pursuit of private interest through market competition results in the unintended consequences of increased social interest, this is called the functioning of an ‘invisible hand.’ In other words, the pursuit of selfinterest entails the maximization of a social product and the establishment of market ethics, or the compatibility of wealth and virtue. In terms of its analogy with games, we can expect to find morality embedded in market competition. It might even be said that games themselves are artificial instruments modeled after society for the purpose of teaching social values (Simon 1992). The Ethics of Competition The term ethics of competition is reminiscent of Frank Knight’s famous conclusion: ‘The ethical character of competition is not decided by the fact that it stimulates a greater amount of activity; this merely raises the question of the ethical quality of what is done or of the motive itself’ (Knight [1923] 1935, p. 71). Knight argued that the qualitative results of a competitive economic system are unethical and the emulative motives in the system are the antithesis of Christianity. He emphasized aesthetic and spiritual values and on the whole disavowed the ethics of competition. But

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it is fair to say that Knight did not consider all aspects of market competition; rather, he focused on competition as a struggle and its weaknesses rather than its strengths. Max Weber’s historical study of the Protestant ethic and the spirit of capitalism is an outstanding work on the relationship between the economy and morality. At the end of the book, he observed: ‘In the field of its highest development, in the US, the pursuit of wealth, stripped of its religious and ethical meaning, tends to become associated with purely mundane passions, which often actually give it the character of [a] sport’ (Weber [1904/05] 1930, p. 182). This remark seems to suggest that a developed capitalist economy can work, like a sport, without religious and ethical foundations and therefore can be transplanted to non-Protestant countries. Nevertheless, a sport has its own ethics, and so has market competition. As commercialized as sports are today, a sport itself becomes an economic act, and its rewards system is based on money. In that case there is no longer a reason to seek a metaphor of the economy with sports. Nevertheless, it still makes sense as rhetoric to find in a commercialized, profit-oriented sport a simplified model of the economy. Valuation of Competition – Subjective Motives, Rules, and Social Ends There has been a great deal of moral criticism of a competitive market economy. But, I believe, the targets of that criticism are sometimes confused: we must carefully identify what is criticized about the many-faceted system of a market economy. In morally evaluating competition, we find three distinct problems: (1) the motives of competition (what moves people to emulation), (2) the rules of competition (under what conditions people compete with others), and (3) the social ends of competition (what is socially achieved as a result of competition). All three problems are legitimate subjects of ethical inquiry. However, whereas (1) characterizes competition as such, (2) and (3) are not inherent in competition but rather depend on how a market system is organized. Competition and market are two different things. Different kinds of games are played under different rules but have competition in common. Seen from the social viewpoint, a market is an institution for carrying out economic transactions or, basically, resource allocation, and one is allowed to demand from a market only what can be done by a market. Other institutions for resource allocation include the state as the public entity, a business firm as an organization for profit, a nonprofit organization (NPO) as a voluntary association, family as kindred, and so forth. As we conceive contemporary economic, political, and social systems as consisting of ‘capitalism, democracy, and social security,’ our ethical valuation of markets is related

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to how other components of the whole system supplement and amend a market system. Having distinguished (1)–(3) for a market system, it will be helpful to illustrate the ethics of competition in markets through an analogy with games. The motives of competition – problem (1) – is criticized for its egoistic or selfish viewpoint, which underlies all competitive efforts whatever their aims: wealth, power, fame, or innovation. Criticism that should be directed to other aspects of market competition is sometimes confused with criticism of the competitive motive as such. But the maintenance of self-interest in social relations requires a lot of effort. Hegel called it ‘the process of education.’ The competitive motive of individuals is a reflection of their efforts to achieve spontaneity and self-development; it is the source of social vitality and the rational basis of social organizations. Self-love, inherent in human nature, ensures vitality and efficiency with the exertion of liberty; restrains the shackles of convention, laziness, and indulgence; and stimulates progress and innovation. Competition ignites self-love and depends on the power of self-interest. Competition is often understood teleologically as if it were a mere condition to achieve some outcomes. But the virtues of self-love that underlie competition and rivalry, such as enterprise, progress, diligence, and prudence, are intrinsic goodnesses. How competition cultivates these virtues on the basis of freedom is an ethical core character of competition, which I call the ‘virtues of competition.’ Market competition is closely linked with the notion of economic freedom. In markets people dispose of their own resources by choice. How is the issue of negative and positive liberty to be understood in this context? Economic freedom in markets defines the concrete shape of negative liberty, which means that people are not prevented from choosing what they want given their income, assets, abilities, and preferences. Although much criticism of negative liberty is based on the judgments in favor of positive liberty, the intent of the criticism is directed to aspects of market competition other than the competitive motive. Competition is a process and has intrinsic values as the motive powers whatever may be accomplished from it. Individual motives of competition are not necessarily egoistic or materialistic. John Stuart Mill opposed the socialist view that all evils in modern society were the results of competition. He argued that competition was not harmful but useful and essential as a stimulus to progress: ‘To be protected against competition is to be protected in idleness, in mental dullness; to be saved the necessity of being as active and as intelligent as other people’ (Mill [1871] 1965, p. 795). While Mill was aware of the evils of capitalism, he correctly realized the significance of competition, as he regarded

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the free development of individuality as one of the essential elements of moral ideals. A market economy is also criticized for its law of the jungle, where the weak are victims of the strong. The rules of competition – problem (2) – are concerned with this criticism. Indeed, free competition leads to unequal distribution of rewards among competitors because they are unequal in ability and other respects, but it is unreasonable to reject the competitive motive because the results of competition are not desirable. The rules of market competition as a social institution must solve the questions of how to construct the premise of competition, how to control the process of competition, and how to deal with the outcome of competition. Competition in markets as well as in games is not Hobbes’s ‘state of nature’ because rules do exist. Finally, a market economy is criticized for its mammonism, hedonism, and materialism. But what market competition is directed to is a matter of its social ends – problem (3). Competition per se is instrumental and indifferent to what is achieved, and it becomes a strong drive toward whatever ends are pursued if they are rewarding. If mammonism is to be despised, we must ask how the pursuit of more noble and virtuous objectives can be implemented and made workable in a market economy. Insofar as a market economy is embedded in society, we must ask how it is embedded. Unless this question is effectively addressed, a ‘market economy’ becomes a ‘market society,’ where markets cease to be a branch of society and dominate society as a whole. Practically speaking, a market economy is typically managed by organizations called firms. In a free society, people engage in various organizations and communities, and are allowed to pursue various ends other than economic ends. The virtue of a market economy depends on the relative evaluation of plural social activities, including the economy. I called this problem ‘social value’ and ‘social leadership’ in the Schumpeterian sense (see Chapter 3, section 3.6). Albert Hirschman, in his fascinating book The Passions and Interests (1977), describes the historical process in which, with the rise of a market economy in modern Europe, the destructive ‘passions’ of men were redirected toward the pursuit of commercial and economic ‘interests’ instead of political and military glory. To follow this idea, the criticism relating to problems (2) and (3) above concerns legal, moral, and cultural conditions as the framework of markets and demands another shift in the ‘passions’ of men from economic ‘interests’ to more human outlets by transforming the framework. The ethics of competition should thus be considered from the overall view of designing a society with (1) viable motives, (2) fair rules, and (3) virtuous

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aims. In what follows we shall consider the moral standing of markets from this perspective. In evaluating the market system, mainstream economics concerns the allocative efficiency of markets and treats market competition merely as a force within an equilibrating mechanism. The Austrian School of Economics, on the other hand, characteristically regards market competition as a process of discovery and utilization of information scattered widely in an economy, but this is still a variant of efficiency analysis. Thus Hayek regards the workings of the market system as a wealthcreating game, not a zero-sum game, because the decentralized use of information through markets will increase the efficiency of resource allocation (1976, p. 115). An analysis of competition from the moral perspective will enable us to make a moral evaluation of markets. The harmonious conception of market competition does not give rise to the moral perspective, although it affords a discussion of technical values like efficiency. The moral perspective concerns the (1) motives, (2) rules, and (3) aims of competition in circumstances where morality is needed to reconcile the self-interests of agents. Three Elements of Games – Record, Struggle, and Cooperation To illustrate the multiple aspects of market competition, we will rely on the metaphor of games. In sports, three elements of competition are concerned with human nature: first, players compete for a record; second, they compete to defeat opponents; and third, they cooperate to win games. We will call these record, struggle, and cooperation respectively. Different sports have different rules for these elements. A particular sport game does not necessarily include all three of them. We can easily distinguish two types of games in sports. The first type, which involves individual sports such as track, swimming, gymnastics, weight lifting, archery, skiing, and golf, does not require a match or matches. In track and swimming, for instance, players compete to establish a record. This type of games can be played without opponents. A player who sets a good ‘record’ wins. In track, several players ordinarily run together, but this is not essential. The runner’s speed, say, in a 100-meter race, is the criterion of winning; simply the record of individual athletes proves who wins or loses. Setting a new record is also made by comparing records achieved at different times and in different places. In track, it is merely for fun and emulation that several athletes run together. In field sports, like pole vault and shot put, a game is mostly played by a single individual; because the merit is skill not speed, there is no need for simultaneous play. We call this a record-type game. Record-type games are played in principle without opponents and therefore are less exciting than games that require

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opponents. To compensate for this shortcoming and to satisfy the fighting instinct of players and the audience, an athletic meet is held even for the record-type game. Although the record-type game is mostly played individually, group competition is also possible – for example, a boat race where several crews form a team. In this case, the element of teamwork or ‘cooperation’ comes into play. The second type of game, such as baseball, basketball, soccer, tennis, judo, boxing, and many others, absolutely requires matches or opponents. There are one-on-one matches as well as group-on-group matches. Players compete with each other using power and technique, and they are allowed to attack and obstruct the other side. The competitors seek to win for their own side at the expense of the other side. Here the meaning of rivalry is entirely different from that in a 100-meter race in track, where physical attack or the obstruction of other players is prohibited. We call this second type the struggle-type game. A game is played so that points can be scored by blocking the score of the other side. Thus this type of contest is a zerosum game and purely relative; an individual or group will win only because the other side is weaker, not because the record of a winner is superior by an absolute standard. It is possible to introduce elements of the record-type game into the struggle-type game. For instance, baseball, a struggle-type game, has established a rule to determine the home-run king based on his record of homers. Regardless of how many home runs one player may hit, others are not prevented from hitting more home runs. Compared with the struggle-type game, a distinctive characteristic of the record-type game is that one player neither obstructs nor is obstructed by other players; he or she is only required to exercise his or her own skills. In the Olympic Games of ancient Greece, held every four years for more than a thousand years, the contest initially was only a short-distance track race. Over time, the pentathlon (discus throw, javelin, long jump, race, and wrestling), armed race, horse racing, and horse-tank race were introduced (Swaddling 1980). Interestingly, most of these are record-type games, and there is only one winner for each event. A ceremony honoring the excellence and glory of winners was the climax of the Olympics and symbolized the unity of the Greek community; in this period a temporary truce was observed among the city-states. Where a sport is played by teams of players, whether in a record-type game or in a struggle-type game, cooperation among the team members is essential to win and is a source of virtues such as dedication and solidarity. Thus a subtype can be suggested for heuristic purposes: the cooperationtype game. The concept of the cooperation-type game is twofold. In the first

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type, the opposing players talk to one another about strategy, victory, and reward before a match. This is a fixed game and clearly against the rules; such conspiracy or collusion is prohibited but can sometimes occur in a game as well as in actual social practice. The second type requires cooperation not between rivals but within a team. A society consists of not only separate individuals but also of groups and organizations, which work through the cooperation of individuals. ‘Record’ and ‘struggle’ (the aims of competition) as well as ‘cooperation’ (the means for these aims) depend on the motive of self-interest. No one can fail to recognize the merits of the system of free competition because it provides a guarantee of freedom, a safeguard against exploitation, and a rejection of indolence. Industry, frugality, prudence, learning, and training – the driving forces of competition – are seen as stimuli to progress. The aspect in which competition, on the basis of individual freedom and self-interest, promotes these virtues is the ethical component of competition. I have called it the virtue of competition and illustrated it through the metaphor of games. Three Elements of Games in Society The three elements of games – record, struggle, and cooperation – can be widely seen in social relations and constitute the multilayered structure of competition in social life. Competition does not assume a single form or function but varies according to the field in which it appears. The first type is a competition of excellence, which is found in particular in education, science, and the arts. In the economic sphere, it emerges in the pursuit of technological innovation. Generally speaking, all record-type activities are competitions for innovation, whereby participants challenge the infinite possibilities open to human beings. Competition in pursuit of creation and innovation breaks old records and brings us to the new frontiers of performance. Record-type competition is not a zero-sum game; it is the source of increasing affluence and excellence. In contrast, the second type of contest is concerned with bargaining about the single position of a winner, bargaining based on attack and defense against others, and bargaining through power, threat, or trickery under the constraints of rules. Of course, the struggle-type matches played between first-rate players involve a competition of skill and power that is comparable to the record-type games. But this is still a zero-sum game, and it is found in the world of politics and organizations, where people pursue scarce positions and power by obstructing and oppressing others. The struggle-type game symbolically represents the survival of the fittest in that the pursuit of one party’s goal is incompatible with that of the other parties when they all are motivated by self-interest. It is a life-or-death struggle characterized

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by hostility: either people must do harm to one another, or they will suffer at the hands of others. Insofar as an organization similar to a sports team exists in social practice, whatever its form may be, the element of cooperation is always at work. In order to prosper, a family, association, organization, community, and so forth must be based on the cooperation of its members. We also see the three elements of games at work in market competition. In economics, ‘perfect competition’ means that a large number of firms are selling standardized commodities to a large number of buyers. For economic agents, entry to and exit from markets are free. As a result, transactions take place anonymously between those agents who find a reciprocal interest in them. The competitive forces of sellers and buyers determine a uniform price; no one is able to manipulate price. Under these market conditions, firms compete with others to produce commodities of better quality at a lower cost; if a firm is successful in quality and cost performance, it will make a profit. Although economic theorizing simply attributes the behavior of profit maximization to firms, market competition is a record-type game in which individual economic agents compete with one another to achieve substantive economic performance rather than to make a profit. Profit is indeed an incentive for behavior as well as a reward to winners, but firms cannot compete directly for profit any more than athletes can compete directly for championship medals without performing in their sport. A competitive market is characterized by anonymous transactions, so producers and consumers do not have to compete with each other strategically. Rather, they are compelled to make advances in their own business. When competition in markets works on the assumption of anonymity and reciprocity in transactions, it becomes the foundation of a universal social order. Market competition as a social relationship can be contrasted with two kinds of noncompetitive relationships. First, market competition differs from personal relationships based on affection, friendship, and cooperation, which tend to prevail within narrow groups such as family, friends, and colleagues. Market exchange takes place impersonally between any unspecified persons. Competition is the opposite of personal relationships; it is an impersonal relationship that assumes equal terms between the parties. The scheme of competition is sometimes regarded as crucially defective because people are in constant dread of rivalry and the matches arouse jealousy, grudges, and discord (Kohn 1992). But this happens mainly within small groups, like school classes, where people are acquaintances. Anonymity and indifference are the characteristics of market competition as an ideal type. Second, market competition differs from power relationships such as struggles, exploitation, oppression, coercion, and plunder, which are zerosum games that can produce lasting suffering to the parties concerned. In

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Table 4.1

Three types of games, social relations, and organizations

Type of games

Type of social relations

Type of organization

Record-type Struggle-type Cooperation-type

Anonymity Exploitation Friendship

Competition Monopoly Security

contrast with the equal terms of agents in a competitive exchange, these power relationships lead to dominance and subordination between agents. Noncompetitive market situations, like monopoly, sometimes involve these elements, and exploitation is discussed in economics literature. Both friendship, on the one hand, and exploitation, on the other, are opposites of perfect competition in the economist’s usage. Sociologists, unlike economists, have been inclined to pay more attention to these positive (favored) and negative (unfavored) types of social relationships than the neutral and harmonious one represented by the economic concept of perfect competition. These types are two polar versions of the sociological human relationship in contradistinction to the economic view. In the following sections we will examine the ethics of competition with reference to three pairs of games and social relationships: the record-type, struggle-type, and cooperation-type, on the one hand, and perfect competition, exploitation, and friendship, on the other. It is important to keep in mind the distinction between the motives, rules, and aims of competition introduced above. In a close correspondence to our three pairs, John Maurice Clark described three forms of organization: ‘competition, monopoly, and security’ (Clark 1948, p. 61). He argued that competition has two opposites: monopoly and security. The upshot of his position is that we use a double standard in assessing the system of free competition: free competition is necessary to keep self-interest within useful bounds and to prevent it from becoming oppressive as in monopoly, yet it should be limited in the interest of mutual security. Our discussion will concern the ethical evaluation of these forms of social relationships and organizations as summarized in Table 4.1.

4.3

RECORD-TYPE GAMES: THE ETHICS OF EXCELLENCE

Excellence and Innovation In my discussion of Alasdair MacIntyre’s internal good and Bertrand Russell’s third category of goods, I called them ‘excellence goods’ to link

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the ethical concept with economics (see Chapter 3, section 3.4). Excellence goods are unique in that, unlike material goods, they are not readily available to everyone (that is, they are similar to oligarchic or positional goods); but unlike oligarchic or positional goods, they are not exclusive to a handful of people (that is, they are similar to public goods). Excellence goods are thus public positional goods in the sense that they are sociologically (as well as economically) scarce but not excludable. When one person succeeds in the pursuit of human excellence, for example, in science, the arts, and sports, others are not excluded from succeeding in the same endeavor. What I called a record-type game is now defined as competition for excellence goods. One aspect of economic activity in markets is compared to the ‘recordtype game’ in the search for excellence. I emphasize that competition is a hotbed of excellence goods or public positional goods. Excellence has been the subject matter of Aristotelian moral theory emphasizing virtues rather than happiness or justice. The pursuit of excellence goods as a goal of competition is supported by the ethics of virtue. In the economic sphere, competition for excellence results in innovation, the most dynamic force in the economy. Whereas the type of competition described in economics textbooks works only as a mechanism leading to a static equilibrium, Joseph Alois Schumpeter viewed competition in the capitalist economy as the engine of innovation that produces a deviation from a static equilibrium (Schumpeter [1942] 1950, pp. 81–3). He expressed the dynamics of capitalism by using the paradoxical term ‘creative destruction.’ Setting a new record in the record-type game is nothing more than creative destruction. Innovation revolutionizes the economic structure, destroying the old one and creating a new one. Capitalist enterprises keenly compete with each other, striving to be first in the introduction of a new commodity, a new technology, a new market, a new source of supply, or a new type of organization. Schumpeter emphasized not only the dynamics of innovation but also the unusual nature of entrepreneurs who innovate. Innovation is unusual excellence. The ethos of entrepreneurs seeking excellence is Schumpeter’s entrepreneurship. According to him, entrepreneurs have three motivations: (1) ‘the dream and the will to found a private kingdom . . . [and] a dynasty,’ (2) ‘the will to conquer: the impulse to fight, to prove oneself superior to others, to succeed for the sake, not of the fruits of success, but of success itself,’ and (3) ‘the joy of creating, of getting things done, or simply of exercising one’s energy and ingenuity’ (Schumpeter [1912] 1934, p. 93). These motivations are different from the conventional assumption of economics that economic agents maximize utility and profits. Although profits will accrue to entrepreneurs as a result of successful innovation, Schumpeter

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emphasized that their grounds for action are not to acquire wealth. As the first and the third motivations in the list indicate, it is possible that the pursuit of excellence does not intentionally involve rivalry with others. Nevertheless, within the objective scheme of competition, the individual efforts of entrepreneurs are consequentially ranked and rewarded. Innovation as excellence, achieved by entrepreneurs in the domains of technology and industry, has proved to be the fundamental component of the history of economic development carrying out the process of transformation. Invention in the scientific domain does not contribute to the well-being of individuals unless it is applied to the economy through entrepreneurial innovation. The Real Economy and the Money Economy There are pitfalls for entrepreneurs, however. Although innovation is concerned with the real economy, namely the world of goods and services as the material basis of well-being, entrepreneurial activities tend to strive for profits for the sake of profits – that is, as the only index of success. They seek profits directly in the money economy, which screens the real economy. The world of finance and speculation has a fascination for geniuses. Thorstein Veblen understood capitalism in terms of the dual structure of industry and business (1904, pp. 1–4). Whereas industry is the machine process meeting the real needs of people, business is the activity of acquiring pecuniary profits. John Maynard Keynes also distinguished between enterprise and speculation in the capitalist economy (Keynes 1936, pp. 158–9). Whereas enterprise forecasts the prospective yield of capital, speculation forecasts the psychology of the financial market. Keynes warned that although speculation does not matter when it is merely a bubble in the steady stream of enterprise, the situation becomes serious when enterprise becomes the bubble in a whirlpool of speculation. This problem has been constantly debated ever since economic activities were undertaken to satisfy material needs. Aristotle distinguished between the art of household management (oikonomia) that satisfies human needs within the framework of the city community and the art of acquiring money (chrematismos), which he regarded as unnecessary (Aristotle 1955, 1256b). This perception dominated the Middle Ages. In the contemporary complex and sophisticated money economy, money not only supports the real economy but also performs peculiar functions in financial transactions, but excessive speculation often creates difficult problems. The so-called bubble economy means abnormal swelling of the money economy. It is hard to find elements of genius, innovation, and excellence in overheated speculation. John Kenneth Galbraith has observed that such

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elements are unrelated to the financial world, and feverish euphoria is all (Galbraith 1990). Markets make innovation possible by allowing free competition. But this is only within the limit permitted by markets. Since the market is a mechanism for realizing economic values, it does not automatically achieve other kinds of values. As discussed in Chapter 1, ethical values are superior to economic values and should regulate the market. Those plural values that people consider desirable for their well-being do not necessarily prosper in the market; indeed, the market is likely to destroy them. Such values include science, the arts, culture, traditions, the environment, and the like, but superiority in life and the exercise of excellence must be sought in all fields of social practice. I have argued that Schumpeter’s idea of innovation holds true for the pursuit of excellence in all domains of society (Chapter 3, section 3.6).

4.4

STRUGGLE-TYPE GAMES: THE ETHICS OF JUSTICE

The Fairness of Procedural Rules Since there are always winners and losers in competitive games, unequal distribution of performance, fame, and rewards is inevitable. When we are concerned with rivalry in competition rather than virtue, it is useful to dwell on the struggle-type model of competition where competition is perceived as a zero-sum game. It is natural to ask, especially from the standpoint of losers, whether a game is fair or not. But not only the worst off have an interest in the fairness of games; even those who do well are concerned with defending as fair what they receive from a game. Friedrich von Hayek has stated that social or distributive justice poses a serious threat to a free society and has persistently rejected the notion of social justice. He also has likened a competitive market to a game in the defense of a free society. According to him, what each player receives as a result of his or her participation in a game must be regarded as just, however unequal it may be (Hayek 1976, pp. 70–73). The concept of the fairness of games has two meanings: the observance of rules and the fairness of rules. Of course, the violation of rules is not permitted, but the observance of rules does not mean that the rules are fair. If the rules are fair, Hayek is right. What he presupposes in this argument is that there is no independent criterion for the right outcome in the market, and that the rules of market competition based on the notion of negative liberty should

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be regarded as an instance of procedural justice. What matters is how to decide the rules of games so that procedural justice will obtain for each kind of game. The point is what determines the outcome of a game. If the outcome is determined by a combination of skill, effort, physical and mental endowments, and good fortune, then a formulation of procedural justice should specify how to justify these causal factors morally. According to John Rawls, superior innate endowments mean natural contingencies, and good fortune including inheritance means social contingencies, but these contingencies are not morally justified (Rawls 1999a, pp. 87–8). Justice depends on how social rules deal with them (see Chapter 2, section 2.3). In the case of games the elimination of contingencies is not the point, because the essence of games is the utmost exertion of the participants’ mental and physical abilities. Therefore Hayek’s use of the metaphor of games in defense of markets is an abuse of rhetoric. Fairness in games involves more sophisticated considerations, taking for granted the disparities of abilities among players. In Japanese sumo and judo wrestling, the difference in the weight of wrestlers does not matter; it is fun to see a small, lightweight wrestler beating a bigger, heavier one by technique. In Western wrestling and boxing, however, the matches are classified according to weight. As it is becoming internationalized, Japanese judo now has matches that are differentiated according to weight. The less skilled players of golf and Japanese ‘Go,’ for example, are given handicaps to permit amateur matches between unequal contestants. The diversity of views regarding such classifications and handicaps in games may reflect cultural differences in the sense of justice. Generally speaking, a match is considered unfair if it is played under unequal conditions created by unfair factors. But what is meant by unfair factors has a wide range of interpretations. For instance, the use of drugs in athletic games is prohibited because it is an artificial method, but the national subsidization of players’ training in socialist countries is not. Japan’s industrial policy to protect and develop infant industries was sometimes criticized as unfair. International economic conflicts are rooted in part in the differences in countries’ sense of justice concerning the rules that should govern economic activity. Social Darwinism Social Darwinism has given moral justification for the outcome of the struggle for existence, yielding a laissez-faire social morality.6 According to this doctrine, the success of winners is a function of their superior qualities and carries a society forward. The ethics of evolution provides one of the

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substantive components of the ethics of competition; it positively evaluates the survival of the fittest under laissez-faire, which is even considered as the goal of the struggle-type model of competition. Then, what has the process of natural selection produced as a principle of social evolution? The answer is divided: the opposing trends – that is, the struggle instinct and mutual aid – are regarded as products of social evolution. Empirical studies in biological evolution suggest the relevance of altruism and cooperation rather than struggle. Whichever position is taken on this issue, social Darwinism is beset by the confusion of is and ought, and one should decide first what is meant by the fairness of competition. Hayek’s approval of a market system that has allegedly evolved from a spontaneous order also suffers from this confusion. The Problem of Self-ownership The presupposition of a market system is private property in that market transactions start with initial endowments of property. The objects of possessions are natural faculties and physical assets. The factors that determine the outcomes of competition in markets are ability, effort, and luck. Ability includes an innate faculty and the influence of education. Although the latter depends on individual effort, the opportunities for education depend on income, wealth, and parental status. According to Rawls, since innate faculty is a ‘natural contingency’ and opportunities and luck are a ‘social contingency,’ it is the task of social institutions or the rules of games to control these two kinds of contingencies. In contrast, libertarians like Hayek maintain that individuals actually determine these outcomes. In terms of the self-ownership thesis, they claim, ability, effort, and luck are all possessions of individuals and it is impossible to separate the ‘owning self’ from the ‘owned self.’ Milton Friedman argues that it is untenable to distinguish between inequality in personal endowments, inequality in inherited wealth, and inequality due to differences in personal capacities. He asks: ‘Is there any greater ethical justification for the high returns to the individual who inherits from his parents a peculiar voice for which there is a great demand than for the high returns to the individual who inherits property?’ (Friedman 1962, p. 164). Taking for granted that people are not deprived of their personal talents, he argues that they should not be deprived of their earned income or their inherited property. What the metaphor of games suggests as a negative example is that one cannot live life twice. Losers of a game can expect to play again, but a life is not repeated. It is unfair that arbitrary dealing of cards should determine the direction of a person’s life. For an individual to live a worthy life

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in the face of life’s difficulties, natural and social contingencies unrelated to her will and efforts must be controlled socially by fair procedural rules.

4.5

COOPERATION-TYPE GAMES: THE ETHICS OF TRUST

Cooperation, Trust, and Community We have found a sociological element of ‘cooperation’ in games depending on whether a game is played by a single player or a team of players. We now turn to the meaning of cooperation with reference to markets. The two meanings of ‘cooperation’ – that is, collusion between players and cooperation within a team – also apply to a society’s economic life. Antimonopoly measures prohibit monopolistic firms from (1) excluding or dominating other firms, and (2) forming cartels or other collusive agreements with other firms. The first measure – the prohibition of industrial domination by big monopolistic firms – aims to restore fair competitive conditions by changing the undesirable outcomes of struggle-type competition. The second measure – the prohibition of joint actions between firms – intends to eliminate illegal, conspiratorial (‘fixed’) contests in struggle-type competition. The competitive system is not equivalent to an unconditional exercise of self-interest. It is, rather, the impersonal mechanism of free competition that controls self-interest in economic activity. When competition ceases to work effectively, monopoly and collusion tend to maintain a privileged position and to serve unregulated self-interest. Another conception of cooperation – that of teamwork – also has important implications in real life. In a competitive market system, people are motivated to increase their own benefits, and their self-interests are satisfied either in record-type competition in pursuit of excellence goods or in struggle-type competition in pursuit of positional goods. The concept of teamwork is relevant to nonmarket social systems to which a principle of justice is applied. A typical system is Rawls’s ‘social union,’ which is based on his two principles of justice. Just as ‘record’ can be linked to ‘excellence’ and ‘struggle’ to ‘justice,’ the sociological concept ‘cooperation’ can be linked to the ethical concept ‘trust.’ Our purpose is to examine how cooperation and trust can be extended from community to society. What makes people join hands in cooperative efforts? It is the practical necessity of working together for the attainment of a common goal. As the teamwork in struggle-type sport games suggests, cooperation is easy when there is a common enemy. In war between countries, the instinctive prime

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mover to cooperate is hostility. Friendship, solidarity, and cooperation on our own side are derived from hatred of the enemy. However, is it possible to conceive of cooperation that involves no enemy? The psychological basis of cooperation is trust in others. When we rightfully expect or forecast the actions of others in specific circumstances, we add a degree of subjective confidence to our expectation. By ‘rightfully’ I mean that given legal, moral, and social rules it is normally possible to expect or forecast something. According to the degree of confidence in the expectation or forecast, we speak of high or low trust. Trust is an act of subjective evaluation of the reliability of others in a certain circumstance. Whereas the object of trust relates to the character of others, trust is the judgment of an observer. Trust is not an objective evaluation of the observed, but a subjective evaluation by the observer. It is a social act in that it is a commitment of one person to others. A valuation act of trust depends on the propensity of an observer to evaluate the character of others. Extension of the one-on-one relationship to a wide range of mutual relationships creates a network of mutual trust (or the absence of mutual trust) on a social scale. Thus trust is an interrelationship between the observers and the observed and represents a type of social practice. In this way both the personal and social aspects of virtue are inherent in the concept of trust (see Chapter 3, section 3.4). If MacIntyre is right in saying that each category of social practice is regulated by a standard of excellence, trust is to be counted as one of the virtues established in communities historically. A society characterized by high mutual trust is a virtuous society, where trust is shared by its members and works as the public goods. People equally enjoy mutual trust in addition to language, history, culture, and values in the pursuit of the common good. Without trust, all promises, contracts, and duties are maintained externally only by legal coercion. Trust provides spiritual ‘social capital’ for the community. Robert Putnam, a well-known proponent of social capital theory, offers a succinct definition of social capital that includes trust: ‘By “social capital” I mean feature of social life – networks, norms, and trust – that enable participants to act together more effectively to pursue shared objectives’ (Putnam 1996, p. 56).7 Francis Fukuyama describes social capital, also with reference to trust, as ‘the ability of people to work together for common purposes in groups and organizations’ (Fukuyama 1995, p. 10). Social capital is conceived in connection with shared purposes in community, but this does not mean that trust creates community, but, to the contrary, that trust and cooperation are created on the basis of the shared common good in community. The ethics of virtue often argues whether a society is trustworthy depends on history and culture. But this is not a satisfactory answer. An analysis of

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social institutions based on the sociology and the economics of trust formation is needed. Sociology and the Economics of Trust Sociologist Niklas Luhmann argues from the standpoint of functional analysis that trust is a framework for reducing complexity and uncertainty in predicting the actions of others (Luhmann 1973). To cope with uncertainty and contingencies with regard to the behavior of others in particular situations, it is necessary to gather information at enormous cost. The need for some stable universal rules is based on the unpredictability of social interactions in particular cases. Unlike external mechanisms such as legal and social sanctions, trust is an internal mechanism for the same purpose. If there is full trust and confidence in others, wide investigation will be unnecessary. Trust is a substitute for full information, and if trust leads to good results, it is a rational cost-saving method. But Luhmann argues that distrust is also a rational method; if one cannot put his trust in others, he had better drop the relationship to avoid danger. Trust sometimes ends in disillusion and disappointment. Hence it follows that there is a limit to the safety zone in which one can maintain trust, and this limit defines the scope of community. I propose the concept of ‘trust cost,’ which is the cost necessary to gain trust in others in this complex, uncertain world. This idea is reminiscent of the ‘transaction cost’ theory of R.H. Coase ([1937] 1988). Coase criticized economic theory for its assumption of perfect knowledge and for its neglect of uncertainty and complexity in markets. In reality, a market transaction requires information gathering, bargaining and decision-making, and policing and enforcement, all of which have a cost. These costs are called transaction costs. When high transaction costs are needed to utilize a market, a firm may be organized to avoid these costs by allocating resources within the firm instead of using the market. Luhmann’s sociological view that the formation of trust reduces social complexities and uncertainties, on the one hand, and Coase’s economic position that the formation of a firm reduces market transaction costs, on the other, are remarkably similar. Although broad social fields exist, the practice of trust lays the foundation of a narrow community as a safety zone. Similarly, although broad market fields exist, the benefits of organization justify the establishment of a firm as a unit of the economy. In fact, the two ideas are merged; the enterprise or organization is not only an object of economic analysis but also an object of sociological or ethical inquiry into community. The firm is a kind of community.

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Coase thus concluded that ‘in the absence of transaction costs, there is no economic basis for the existence of the firm’ (Coase 1988, p. 14). If transaction costs exist, ‘the distinguishing mark of the firm is the supersession of the price mechanism’ (Coase [1937] 1988, p. 36). I suggest a similar conclusion: that is, in the absence of complexity and uncertainty in social relations, there is no ethical and sociological bases for the existence of trust and community, and people will fulfill the general rules of society embodying the idea of justice. But if trust costs are needed to overcome social complexity and uncertainty, the peculiarity of trust and community is withdrawal into a small safety zone by the supersession of the sphere of universal justice. The Market Society, Social Union, and Organization We have seen the sociological and economic reasons why trust, organization, and community exist within a society that is complex and uncertain. The next problem concerns their moral standing and meaning. How should the intermediate organizations between individuals and society be evaluated from the ethical point of view? How should trust as the constituent of these organizations be evaluated ethically? Starting with individuals, contemporary liberal thought views a society in two distinct ways. One view is the libertarian conception of society: that is, a competitive ‘market society’ or ‘private society’ with minimum government activity. Here a society is interpreted as a network of anonymous exchanges, and economic liberty ensured by competitive markets is considered the foundation of political liberty. The other view is the contractarian conception of society: that is, Rawls’s ‘social union’ based on his two principles of justice. Here each person needs others as partners in social life and regards the success and pleasure of others as necessary to his own happiness. Social union does not prescribe a division of labor that is based merely on self-interest; rather, it is a cooperative society based on a sense of justice whose members share a common goal. The shared goal is to maintain just institutions and realize the plural values of society’s members; the society does not impose a uniform value on its members. Both market society and social union are large societies characterized by anonymity and impersonality. But whereas market society is organized as a system of ‘efficiency’ based on competition, social union is a framework for cooperation and reciprocity based on the universal notion of ‘justice.’ Table 4.2 locates organization and community between two poles: market society and social union. Market society represents the sphere of good, and social union represents the sphere of right.

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Table 4.2 The market society, social union, and organization and community A. Market society (efficiency) Sphere of good (rational)

Transaction cost (Coase’s thesis) C. Organization and community (virtue)

Sphere of right (reasonable)

Trust cost (Luhmann’s thesis) B. Social union ( justice)

The relationship between market society (A) and organization (firm) (C) is the problem of transaction cost, and the relationship between community (C) and social union (B) is the problem of trust cost. Coase’s and Luhmann’s theses are analogical. Here are introduced the concepts of ‘rational’ and ‘reasonable’ used in the definition of moral persons (see Chapter 2, section 2.3), which represent the two powers of moral persons. Thus in the sphere of the rational, organization (C) is established if total dependence on global market transactions is infeasible in terms of transaction cost; and in the sphere of the reasonable, community (C) is established if total dependence on global trust is infeasible in terms of trust cost. Although social union regards a society as a system of fair cooperation, cooperation in social union is quite different from cooperation in a smaller community that is based on trust in face-to-face relations. In contrast, cooperation in social union means the sharing of the universal principles of justice among strangers. Organization and community are located between market society and social union in terms of institutions, or between efficiency and justice in terms of values. Table 3.2 in Chapter 3 described two controversies in economics and ethics. The relationship between market society and social union noted here is equivalent to the relationship between (A) theory of market equilibrium and (B) theory of justice in Table 3.2. The two institutions – market society and social union – represent the views of society based on methodological individualism. Locating organization and community between the two institutions means a shift from individualism to holism in terms of Table 3.2. Therefore organization and community are indicated as (C) in Table 4.2 to show continuity from Table 3.2. Organization and community, though they include individuals, are centralized and authoritative decision-making systems. As Ferdinand Tönnies argued (see Table 3.3) the dominant value in organization and community is the

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common good, which is interpreted as the object of ‘understanding’ by the individual members or as the content of ‘custom’ socially imposed on the members. Our concept of trust is the reduction of this value to the individual level. Moral Development Theory It is necessary to examine the ethical foundations of the two systems – that is, (B) and (C) in Table 4.2 – confronting each other in the sphere of right. According to the moral development theory of Jean Piaget (1932), Lawrence Kohlberg (1981), and John Rawls (1971), individuals proceed through stages of moral development that correspond to the developments in their cognition and psychology. An abridged version of the stages is as follows: 1. 2.

3.

The morality of authority in infancy is based on the authority of parents; obedience is in one’s immediate interest. The morality of association is based on mutual interpersonal expectations within specific groups, and what is right is the fulfillment of expectations, maintaining trust, loyalty, respect, and gratitude. The morality of principle depends on an understanding of the universal principles of justice irrespective of one’s own interests or others’ expectations.

Morality is based on universalizability; the rules of a society are established by putting oneself in the other person’s place. Morality differs in stage and nature according to whether the rules are established between children and parents, or between friends, or between strangers. The difference between stages 2 and 3 is significant. In stage 2 a person recognizes the existence of others such as family, friends, and colleagues and learns his role according to the specific associations or organizations in question. Relationships in this stage involve love, affection, and trust; these virtues are interpersonal but remain local and are not universalized. In stage 3 one accepts the position of all others, including strangers; this is possible by understanding universal moral principles. Here the relationships between agents are universal and societal. Interpersonal but local relationships, such as love, affection, and trust, must now be universalized to impersonal cooperative relationships. The collectivism of Japanese business firms, which is sometimes regarded as the core of the firm-oriented Japanese society, is a kind of morality of association. Of course, this morality is valuable because it is essential for the effective operation of the group. But its perspective is limited, and it has

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not reached the stage of social morality, so it sometimes produces corruption among businessmen and public officials. The gap between stages 2 and 3 is a conflict between rationality required by an organization and justice required by a society. The issue of the social existence of firms relates to the question of how the value of rationality pursued by an organization is to be located under the value of justice in the society as a whole. Business ethics must proceed from stage 2 to stage 3. Hayek distinguishes between a small group, in which individuals are acquainted with each other, and a large group, in which they are not; he claims that within a large group in modern society universal, general rules must prevail to meet the need for the decentralized use of information (1989). Socialism, he argues, is a false attempt to apply a centralized method of resource allocation, which is valid only in a small group, to a large group. Although Hayek’s argument is given from the viewpoint of the use of knowledge, it can be interpreted in terms of the stages of morality because the argument concerning small and large groups parallels that concerning the morality of association and morality of principles. The Universalization of Trust This raises three questions. First, how can we apply the principles of universalizing trust from an organization or community to society as a whole? Second, what are the practical methods of universalizing trust from a community to society generally? And third, what can we expect of a wellordered society driven by the virtues of mutual trust and cooperation? The contractarians’ answer to the first question is that universalization of trust will be achieved by its integration with and its subordination to justice. Luhmann distinguishes between personal trust and system trust: ‘personal trust’ is trust in other persons, whereas ‘system trust’ is trust or confidence in a social system or institutions (Luhmann 1988). Here we have been concerned with personal trust. Trust formation defines a community or a safety zone within society, and a gap between a community and society as a whole represents areas that must be filled through the universalization of trust from circles of acquaintances to groups of strangers. Paradoxically, trust is most needed in a society where it is absent, whereas it is most realized in a community where it is not needed. The universalizability of trust will depend on the rise of system trust, because people are all strangers outside their own communities. System trust will prevail if people share the principles of justice that will ensure the reciprocity of self-respect and equal consideration among individuals. Concerning the second question (the practical methods of universalizing trust), no firm can depend solely on the operation of isolated organizations

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without recourse to markets or other public schemes, because firms must still rely on the market to sell their products. Although individuals often belong to one or more organizations such as a family and a firm, they still must function in an open society outside their own organizations. There are different, practical ways of universalizing trust to fill the gap between a community and society. The US is labeled a type of legal system where contracts and litigations are based on self-interest and competition. Even American business firms do not operate as much by teamwork as by competition among individuals. By contrast, it is recognized, especially in Japan, that there is a third economic institution for resource allocation, which falls between the market and a firm. Called an intermediate organization, this third institution consists of a group of firms (Keiretsu) connected by a long-term contract for the purchase and sale of commodities. Transactions between firms within an intermediate organization are neither anonymous as in a market nor determined by hierarchical power as in an organization. It is an extended type of supersession of the market by firms. There is also an Asian type of crony or nepotistic network of organizations, based on family and kinship, within the business and government sectors. The intermediate organizations and nepotistic networks are sometimes criticized for excluding outsiders and dominating the associations among the groups, as well as for engaging in corruption. The dichotomy of group-oriented and individualistic societies is too simplistic. Instead, two vectors move in opposite directions to fill the gap between communities and society and to create system trust: one is the cultivation of the morality of association to the level of society, and the other is the penetration of the morality of principle to the domain of communities. The relevant literature distinguishes two types of social capital: bonding and bridging social capital (Putnam 2000). The bonding social capital is an introverted network that pulls together like-minded people within a group; the bridging social capital is the extroverted network that builds horizontal connections between heterogeneous groups. The latter idea represents an effort to fill the gap between communities and society by extending the scope of shared objectives of communities to reach the societal level of morality. What is important is not trust itself, but the level of trust. Francis Fukuyama’s book, Trust (1995), relates to our third question (the results of mutual trust and cooperation in a well-ordered society). His thesis on the economic consequences of mutual trust and cooperation is that a high-trust society, in contrast to a familial society, produces largescale organizations and innovations because of its universalized trust and spontaneous sociability. This thesis must be generalized to a perfectionist

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one that regards excellence in the performance of a wide range of social activities as the natural development of virtue ethics. Performance relates to MacIntyre’s notion of social practice including work, the arts, science, sports, and politics, but it is not confined to special categories of cultural activity, as contended in Chapter 3, section 3.6. Although Fukuyama argues for the compatibility of community and efficiency, it is my claim that, based on virtue ethics, the compatibility of perfectionism and liberalism or of excellence and justice is one of the frontier issues of economic ethics (Wall 1998). This task of proving compatibility raises the question of how virtuously people should live beyond pursuing an efficient and just society.

4.6

TWO MODELS OF CAPITALISM

Corporate Governance: American and Japanese Types In addressing the ethics of capitalism, this text assumed a competitive market system as the standard. Although the Achilles’ heel of the capitalist market system is the inequality of income and wealth, it has worked as an innovative record-type production system because it has proved that the robust system is rooted in the virtues of competition. But since it clearly is a struggle-type social system that leads to inequality among the participants, to survive it must be supplemented by an external framework with a justice orientation. However, does capitalism have only a single model of this sort? Cannot capitalism meet the demands of justice by transforming itself ? To consider this question, it is necessary to perceive firms in markets not as a single point but as an organization with structure. It is because we want to regard a firm as a group that we have recognized the aspect of cooperation-type games in competition. This view leads to questions about ownership, governance, and decision-making of a business organization called a firm and, consequently, to different types of capitalism according to the differences in these respects. Michel Albert’s Capitalisme contre Capitalisme ([1991] 1993) distinguishes between Anglo-Saxon capitalism and German-Japanese (or Rhine) capitalism; it characterizes the former as a pursuer of individual success and short-term benefits and the latter as a pursuer of collective success and long-term benefits. Other studies point out the peculiarities of German and Japanese corporate systems and behavior compared with Anglo-Saxon ones (Aoki 1990; Dore 2000). Here we will not survey all aspects of the topic, but rather focus on the mechanism of cooperation in

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Japanese capitalism to further illustrate the ethics of capitalism. We might discuss more diverse types of capitalism, but typology depends on the degree of abstraction. For our purpose, it suffices to distinguish two types of capitalism. Corporate governance concerns who owns the firm and controls its organization. In capitalism, the typical corporate form is the joint-stock corporation owned by shareholders. But employees including managers carry out everyday business activities. It is appropriate to understand the corporate governors as the corporate sovereign and to distinguish between ‘shareholder sovereignty’ and ‘employee sovereignty.’ We simply assume that American capitalism (A) is based on shareholder sovereignty and Japanese capitalism (J) is based on employee sovereignty. Capitalism based on shareholder sovereignty is called ‘shareholder capitalism.’ To distinguish the other type of capitalism, the word ‘stakeholder capitalism’ is sometimes used to express the view that business should be run not only by shareholders but also by a wide range of individuals who have a stake in the business, including managers, employees, creditors, trading partners, consumers, neighbors, and so forth. But those other than shareholders and employees (including managers) are outsiders, not members of the firm. The characteristics of the two types of capitalism from the viewpoint of corporate governance appear in Table 4.3. This comparison obviously includes exaggerations, because the differences might be a matter of degree. If so, the capitalist system can be described by a wide range of identifiers, and thus the assumption of the unitary rule of the American type should be avoided. The institutional characteristics of Japanese firms can be summarized with reference to labor, capital, and products. First, apart from the legal perspective, since Japanese society commonly views employees as the corporate sovereign, the Japanese pattern of employment favors ‘lifetime employment, seniority wages, and company union.’ This system ensures long-term employment and contributes to the formation of trust and loyalty to firms. The notion of the firm as the place of lifetime work and career creates the ethics of cooperation and trust in the group. Such ethics cannot be established in the market of commodity exchange. The market is, so to speak, a world regulated by the Consumer Contract Law, in which fraud is prohibited, honesty to observe a contract is demanded, and good manners are praised. Albert Hirschman, quoting the description on the relationship between civility and commerce in Montesquieu’s De l’esprit des lois (1748), named it the ‘doux-commerce thesis’(Hirschman [1982] 1986). Accordingly, the development of commerce in sixteenth- to eighteenth-century Europe, in place of plunder, fraud, and barbarism, generated polished human

The ethics of capitalism

Table 4.3

Two types of capitalism: American and Japanese

American type (A) A1. A2. A3. A4.

A5.

A6.

Corporate sovereign is the shareholder. Firm is for the benefit of shareholders. Firm consists of assets. Business is executed hierarchically, and working units perform on an independent and expert basis. Profits are distributed as dividends to shareholders.

Japanese type (J) J1. J2. J3. J4.

J5.

A7.

Business record is measured by short-term investment profits and the price of stock. Direct financing.

J7.

A8.

Independent shareholders.

J8.

A9.

Firm depends on transactions in the market.

J9.

A10.

Managers are also chosen from outside the firm. Employees make short-term wage contracts.

J10.

Employees’ incentives are increased earnings.

J12.

A11.

A12.

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J6.

J11.

Corporate sovereign is the employee. Firm is for the benefit of employees. Firm consists of men and women. Working units are coordinated horizontally and interdependently using the shared information. Profits are internally reserved for the future development of the firm. Business record is measured by market share and increase in sales. Main banks and indirect financing. Banks and firms within the corporate group mutually hold a large share of stock. Firm organizes long-term contracts with specific trade partners besides anonymous transactions. Managers are normally promoted from within the firm. Employees hold long-term employment contracts and maintain a feeling of affiliation. Employees’ incentives are a long-term reputation and promotion.

behavior and civility. This may be true, but the ethics of production demands more than the ethics of commerce. Whereas commerce is a single-action relationship between merchants and customers, the place of production contains a fixed group in the firm. To achieve the common aims of increased productivity and efficient management, the production group requires a spirit of teamwork, cooperation and

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trust, and responsibility in job performance. Japanese industries created a production-type work ethic by making firms function as the Gemeinschaft rather than the Gesellschaft. In Japan, even commercial trade between firms is not considered a single act but is maintained as a long-term act between the parties. Second, with regard to capital, in order to stabilize the corporation’s financing, Japanese firms developed a group-of-firms system supported by the main banks, the mutual shareholding by firms within the group, indirect financing, and the practice of avoiding buying-up of stock, mergers, and takeovers. In contrast to the American style of governance, whereby shareholders uniformly control firms, Japanese managers behave as if they were the owners and are motivated to give preference to the benefits of employees. Shareholders are among the stakeholders whose interests must be taken into account. According to the American view, a firm consists of physical and financial assets; it takes for granted shareholders’ control, corners of share, mergers, takeovers, and the recruitment of executives from outside. By contrast, the Japanese view maintains that because a firm is a human organization or community, such measures should be avoided. Third, there is an important difference between the US and Japan with regard to the overall relationship among capital, labor, and products. As Coase argued, as alternative methods of resource allocation, the firm and the market are interrelated. Although the firm itself conducts resource allocation for production, it must still depend on the market for the purchase of resources and the sale of products. Moreover, as the market is a place for realizing profits, the attitude of firms toward the market has a strategic importance. In American firms, labor and capital – once fixed within firms – are still likely to become fluid toward markets under the pressure of a market principle. In a Japanese firm or group of firms, on the other hand, labor and capital are fluid only within the firm or the group of firms. With regard to products, the domination or organization of markets by firms features ‘intermediate organization,’ including subcontracting, Keiretsu, and a group of firms. These practices contribute to the establishment of long-term cooperative relationships between firms to maximize common benefits. The first point above characterizes the nature of a firm by the position of employees within it; this is crucial to an understanding of employee sovereignty. It is useful to amplify this point from the ethical point of view. Speaking in the abstract, work ethics is usually regarded as the basis of individual responsibility, but in employment practice and the system of horizontal coordination within Japanese firms, it is also regarded as the basis of cooperative responsibility in the production-type group. Furthermore, if firms wish to pursue innovations, the ethics of cooperation leads to the ethics of excellence. This means that self-respect as a sense of

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accomplishment is achieved not only individually but also on the basis of solidarity. Consequently, in the Japanese type of capitalism, employees form a community united by a bond of mutual benefits, a belief in cooperation and trust as a duty, and a regard for work as worthy of challenge. A firm is a place, not of mere labor, but of lifetime employment. People entertain a sense of identity with and commitment to firms. This can be described as the formation of the Gemeinschaft through the Gessellschaft. The second and third points above explain the support mechanisms that reinforce this employee-oriented corporate system. Formation of a long-term interfirm cooperative structure for capital and products means that firms organize the market. As a result, the test of American markets does not necessarily apply to the organized aspect of Japanese markets. Whatever the internal structure of an organization may be, it is primarily a problem of firms. But the organization of markets is an object of normative evaluation because it is part of social and economic institutions. Historical Background and Variability of Capitalism Then, how was the Japanese type of capitalism established? There are, of course, various explanations, but the most convincing one is that the special features of the Japanese economic system originated in the resource mobilization program started in the 1930s for total war (Okazaki and Okuno-Fujiwara 1999). The war-oriented economic system was maintained after World War II to serve the new national priority of economic recovery and growth. The typical, though infant, capitalist system that had been implanted by the 1930s was radically changed to achieve this new national goal. Through a series of measures, such as restraining the influence of shareholders, controlling dividends, separating ownership and management, and promoting managers internally, the position of managers and employees was raised, and managers were defined as the representatives of organizations. The Japanese employment practices were measures to control labor. The national investment plan was based on the promotion of individual savings, direct financing by banks, and national bonds. And the subcontract system was expanded to coordinate input and output in production. From the standpoint of morality, competition and profit motives were rejected as antisocial, and cooperation between capital and labor and between the state and industry was advanced as the business ideal. In this way, the nucleus of the present Japanese economic system was established. This explanation emphasizes that although in the early stage of Japanese industrialization, the pattern of corporate governance based on American capitalism was dominant, the specifically Japanese type was created

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Table 4.4

Institutions

An analysis of two capitalisms Economic system

Corporate governance Shareholder sovereignty Employee sovereignty

Market economy

Controlled economy

(A) US capitalism (D)

(C) (B) Japanese capitalism

politically during wartime. This interpretation rejects the deterministic account of the Japanese system in terms of cultural collectivism and asserts that the Japanese economic system was produced rationally under certain historical circumstances. Of course, not all the elements of the system were introduced during wartime. But, importantly, the corporate governance of the Japanese type and the state control appeared in tandem. The wartime economic system of Japan rejected both a free market system and a communist planning system; though it had to utilize resources in the private economic sector, it was compelled to intervene in corporate governance, the central part of the private economy. Thus the point suggested by the Japanese type is not that capitalism originally was of two types, but that state control created one of them in the historical process. If so, the two types of capitalism are distinguished not only in terms of corporate governance, but also in terms of the relationship between the state and industry, that is, the difference in the economic system. In Table 4.4, the US and Japanese models are displayed along two axes: economic system and corporate governance. In theoretical terms, Japanese capitalism encounters the question of how the firm as an organization, in a large society with the two poles of ‘market society’ and ‘social union,’ should universalize its ethics of ‘cooperation’ in light of the ethics of ‘efficiency’ and ‘justice.’ Actually, Japanese capitalism has been criticized for two reasons: criticism comes from the poles in institutions and values. First, current Japanese capitalism has to test for efficiency since it has emphasized a closeness and rigidity instead of the openness and flexibility demanded by conventional market principles. The trend of globalization imposes this test on the Japanese system. Second, Japanese capitalism has to accept the universal concept of justice because it has favored the logic of firms that is the morality of association, not the morality of principle. When the ethics of cooperation is universalized beyond the boundary of firms, it becomes the ethics of justice. In Table 4.4, the trend of globalization under the banner of ‘efficiency’ will move the Japanese system from (B) to (A). For this move to occur, it is

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necessary to reform various state regulations, especially industrial policies and antimonopoly policies that have protected the noncompetitive market structure, and to change the inner structure of the corporation that has supported employee sovereignty. But this is not the only way. Is not a move from (B) to (C) or (D) possible? Or is it possible to stay at (B), trying to introduce the efficiency principle? Criticism of the economic system from the viewpoint of ‘justice’ is that the growth-oriented industrial policy and the antimonopoly policy in favor of industry will perpetuate unfair competition. Criticism of the corporate governance is that under employee sovereignty a check of managers is so ambiguous that reform of business practice and enforcement of business ethics are required. Without moving to shareholder sovereignty, is it possible to maintain employee sovereignty and positively respond to these criticisms? These weighty questions cannot be answered without considering the reality. In this sense, diversification of capitalism is still possible. However, I argue that from the viewpoint of justice, although state interference in favor of firms and industry is to be eliminated, the civic institution of the welfare state should be maintained. Therefore, wherever the position of the capitalist system may be in Table 4.4, the welfare state that circumscribes the capitalist system should exist because capitalism is part of the welfare state, which consists of ‘capitalism, democracy and social security.’

NOTES 1. For recent inquiries, see Evensky (1993) and Montes (2003). 2. See Becker (1977), Ryan (1987), Grunebaum (1987), and Carter (1989). 3. For a valuable anthology, see Furubotn and Pejovich (1974). For an application of the transaction cost approach to property, see Barzel (1989). 4. For recent comprehensive inquiries of historical figures relating to property, see Waldron (1988) and Munzer (1990). 5. The metaphor of games presented here has nothing to do with a mathematical theory of games that deals with the choice of strategies between players. 6. For a general survey of the history of evolutionism, see Bowler (1989). 7. For the current issues of social capital theory, see Baron, Field and Schuller (2000), Fine (2001), and Lin (2001).

5. 5.1

The ethics of democracy THE PRIVATE SPHERE AND THE PUBLIC SPHERE

Politics between the Economy and Morality Thus far we have addressed the world of the economy and the world of morality. In this chapter we are concerned with the world of politics. For the present, we can assume that the place of politics in our conceptual framework is between the economy and morality and mediates the two. The approach or attitude of the economy and morality toward politics is different. Although an economic system should be constructed on an ethical foundation, ethical economic institutions do not arise spontaneously. Institutions to control the economy must be constructed with the help of the political process. The logic of the economy, because of its potential universality, is likely to dominate the political process and to affect the world of morality in order to mold institutions so they will favor economic interests. Which side politics is on must always be the issue. For social purposes, the economy deals with the allocation of limited resources to satisfy the various desires of people within a society defined by the boundary of the state. Of course, economic activity spreads beyond the national state to encompass the entire world, but the national frame represents meaningful unity in that within that frame common institutions and public policy are enforced by the sovereign state. Moreover, the state is not only the seat of politics and law but also a community that is distinguished from other states in terms of geography, race, language, religion, customs, and history, whose inclusive concept is culture. In this chapter we ask, what is politics and its relationship with ethics? Politics means public decision-making and its implementation by law and policy for the governance of the state, which is essential to the creation and maintenance of order in society. To follow an analogy with the definition of the economy, politics is the allocation of power for public decisionmaking by members of society to govern society. The objects of public decision-making are called ‘public issues.’

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The Private Sphere and the Public Sphere Although it is heuristically useful to compare economic and political paradigms – the allocation of economic resources and political power – from the viewpoint of social purposes, there is a real difference between the economy and politics. In the economy, the members of society, whether in a market system or a planning system, are engaged in the satisfaction of desires based on their decision-making within the constraints of the system. If we define the private sphere as the place where people can make self-contained decisions to achieve their own aims under given institutional rules, economic activity is performed in the private sphere. In other words, the economic sphere is typically a space in which one is allowed free choice on the basis of self-interest. The private sphere is not restricted to the economic sphere; various ‘practices’ defined by Alasdair MacIntyre ([1981] 1984) and various ‘fields’ defined by Pierre Bourdieu ([1979] 1984) also belong to the private sphere. Of course, as long as individuals live in a society, a number of relationships will arise among those working in the private sphere, but the observance of social rules and involvement in social relations and sociability need not necessarily be in the province of the public sphere. What the rules of institutions and relationships should be and how they are to be decided constitute public issues, which should be resolved through the political process of collective decision-making in concert with the pursuit of public interests. In the private sphere, public issues concerning what should be done about society are not matters of individual interest; the so-called economic man of mainstream economics minds only his own business. The public sphere, then, can be defined as the space in which the members of society debate ‘public issues,’ determine solutions, and implement them on behalf of the public interest. Given that institutions consist of social norms (that is, ‘laws, morality, and customs’), on the one hand, and various forms of social systems, on the other, it is argued that man is concerned with the ‘public issues’ and involved in the ‘public sphere’ when he encounters issues that relate to these norms and systems and is urged to recognize, evaluate, and determine rather than to merely abide by them. Although politics is usually thought to be in the public sphere, that is not necessarily so, according to the present definition, if it is driven by selfinterest as conceived in the private view of politics such as Schumpeter’s model of democracy ([1942] 1950). The public sphere is a distinct field of action that can emerge whenever men deliberate, and act in concert on public issues. This field may be called a political community or ‘the forum.’ Individuals with various capacities and qualifications join the public sphere; they include lawmakers, government officials, journalists, scholars,

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and citizens generally insofar as they are concerned about public issues. Although the private conception of politics does explain certain aspects of political activity, it seems more illuminating to observe the functional as well as the normative relationship between the public and private spheres without jettisoning the concept of public. Thus we may conclude that the economy and politics typically represent activities in different spaces, that is, the private sphere and the public sphere respectively. Since a definition depends on purposes, different definitions can be offered for the private/public distinction.1 However, it is inappropriate, for example, to regard market and family as part of the public sphere, because it brings the values and behavior patterns of market and family into the discussion of public issues. Market and family can be public issues, but they are not in the public sphere. In my concept of the welfare state, market and family belong to the private sphere and the state to the public sphere. Then, why is the public sphere required for public decision-making in addition to the private sphere for private decision-making? In other words, why must society have a government with coercive power to determine social rules and institutions through the political process? The answer to this most basic question in political philosophy is that the power of the government is required to establish and enforce order in society via a system of fair cooperation, because the unlimited free play of individuals in pursuit of self-interest does not automatically harmonize with the public interest, including security of life and stability of the community. This is the thesis of the state of nature in Thomas Hobbes. If it is reasonably argued that a social contract for security and stability emerges from the struggle to pursue self-interest, this will undoubtedly justify the power of the government. If the two constituents of institutions – morality and custom – are allpowerful in the solution of public issues, the governance of society by the third constituent – law – is unnecessary. This is the argument of anarchism, which condemns coercion as evil and calls for abolishing the government. But the functional limits of morality and custom in maintaining order necessitate public decision-making through a political process. Public/Private and Institution/Individual The core proposition of the ‘old’ institutional economics is that institutions and individuals constitute an action–information loop, as shown in Figure 5.1 (Hodgson 1998, p. 176). Institutions provide individuals with information on rules, and the actions of individuals, in turn, form institutions on the basis of convenient regularities in actions. The interactions are selfreinforcing: institutions mold and are molded by human action. As stated

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Information

Actions

Individuals

Source: Hodgson (1998), Figure 1, p. 176. Reprinted with the permission of the author and the American Economic Association.

Figure 5.1

Action–information loop

in Chapter 3, section 3.3, the standpoint of the ‘old’ institutional economics is ‘institutionalistic individualism.’ The ‘new’ institutionalists, however, explain the emergence of institutions by reference to a neoclassical model of rational individual behavior. They argue that individuals and their preferences are regarded as given and free from institutions. Individuals are not motivated by habits or rules but by rationality, and institutions are established as the unintended consequence of human interactions through the evolutionary process of spontaneous order. Therefore, in the ‘new’ institutionalist thinking, the right side of the loop in Figure 5.1 does not exist. The ‘new’ institutional economics is an extension of neoclassical economic theory from the analysis of the private sphere to that of the public sphere. The view of neoclassical economics, characterized by the assumption of rational agents who are independent of institutions and concerned only with utility maximization, now faces difficulties when their research agenda is the analysis of institutions that are no longer assumed as given. So it is useful here to keep as the standard of reference the wider perspective of the ‘old’ institutionalism, which allows circular relationships between institutions and individuals. But the institutionalist framework in both schools does not distinguish explicitly between the three different categories of institutions, as we do, nor between the public and private spheres. Rather, institutionalist thinking characteristically focuses on the function of habits in creating customs rather than laws and morality. I propose to introduce the public/private dichotomy into the institution/ individual dichotomy. First, information on rules transmitted from institutions to individuals is divided into two channels: one relating to the norms

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Institutions

Private sphere

Public sphere

Individuals

Figure 5.2

Public/private and institution/individual loops

that regulate the private sphere and the other relating to the public sphere (depicted as two solid lines in Figure 5.2). And second, institutional rules established evolutionarily by individual actions are also composed of two channels: one is derived from actions in the private sphere and the other from actions in the public sphere (shown by two dotted lines in Figure 5.2). Some might believe that public and private are indistinguishable. However, the apparent complexity of public/private can be disentangled in Figure 5.2, which shows that the separate public and private spheres are related through individual actions and institutional rules. Several important cases can be identified. First, the fact that the private sphere and the actions of individuals in that sphere are subject to social norms does not deny the distinction between public and private. Social norms and the public sphere are different. For example, by inevitably joining a framework of social cooperation, individuals are involved in social activities such as paying taxes and receiving social benefits. Socialization of private life does not mean extinction of the private sphere, nor fusion of the private sphere with the public sphere. Second, as Bernard Mandeville’s catchword ‘Private Vices, Public Benefits’ and Adam Smith’s idea of an ‘invisible hand’ show, the pursuit of self-interest in the private sphere can produce a remarkable social performance by institutions in which private activities take place. A spontaneous causal relationship between the private sphere and social performance does not deny the distinction between public and private, nor the existence of the public sphere. Social consequences of the private sphere become the concern of the public sphere only if they affect social norms. And third, the confusion of public and private matters, often referred to as ‘notoriety,’ indicates an abuse of public life for the benefit of private life. This is explained as a case of penetration of the public sphere by

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private incentives and interests that are legitimate in the private sphere. Schumpeter’s conception of democracy in terms of the self-interest of politicians and voters also applies here. These considerations suggest the following preliminary results: (1) public/private issues can be approached within the institution/individual framework; (2) the agenda to be addressed in public/private issues can be set out in terms of institutions, namely, laws, morality, and customs; (3) institutions offer information on rules to both the public and private spheres; (4) individuals participate in both spheres, the dominant activities being economic, political, cultural, and social; (5) the interactions between institutions and individuals occur through evolutionary feedback on information and actions through the public and private spheres; and (6) alternative conceptions of human agency should be examined instrumentally within the institution/individual and public/private framework. The specific nature of loops linking public and private and institutions and individuals depends on what institutions are presupposed in the analysis. Here capitalism is assumed for the private sphere and democracy for the public sphere.

5.2

UNION AND DISUNION BETWEEN CAPITALISM AND DEMOCRACY

Ideas of Democracy One of the most prominent scholars of democracy, Jean-Jacques Rousseau, wrote: ‘The problem is to find a form of association which will defend and protect with the whole common force the person and goods of each associate, and in which each, while uniting himself with all, may still obey himself alone, and remain as free as before’ (Rousseau [1762] 1988, p. 23). According to Rousseau, the social contract provides the solution. The etymology of democracy in the West dates back to demokratia as the political form of the Greek city-state in the fifth century BC. In answer to the question of who should make a decision about public issues within a group, democratic theory maintains that all individuals in the group should have opportunities to play free and equal roles. If governance by power is inevitable in politics, we wish to govern ourselves; this means liberty as autonomy. And if liberty is important, we must be assured of liberty equally. Thus the ideal of democracy is the self-governance of a group based on the equal distribution of political power. The difference between the economy and politics can be demonstrated with specific reference to capitalism and democracy. First, whereas a

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market system as an ideal type guarantees people negative liberty in the private sphere, a democratic system also as an ideal type assures them of positive liberty in the public sphere. In terms of the political ideal in history, whereas the Germanic conception of liberty consisted of liberty from dominance, or ‘liberty from the state,’ the ancient conception of liberty was liberty to participate in public decision-making, or ‘liberty to the state’ (Kelsen [1920] 1929). A market economy works in the direction of liberty from the state, whereas political democracy reverts to the ancient ideal of liberty to the state. Second, in view of the analogy between a market system and a voting system, whereas democracy ensures one person one vote, the market provides persons with unequal power over economic resources, which means inequality of income and wealth. Third, voting by money in markets determines the final consequences of resource allocation, including all economic phenomena from the demand and supply of particular goods and services to the production, distribution, and expenditure of national income. In contrast, voting in a democratic system determines procedural rules based on the manifestos of politicians and political parties, seldom concrete social states. The consequences of the manifestos and platforms of chosen parties will take time to see, and will depend on the repercussions of behavior in the private sphere. Historically, Greek democracy was direct democracy in small city-states, and for 2000 years from that time democracy disappeared from the earth. It was after the civil wars in the seventeenth and eighteenth centuries that democratic regimes appeared in the form of representative democracy based on the national states. Democratic government was expected to defend the will and interest of the people, to resist monarchy and aristocracy, and to eliminate injustice and oppression. Insofar as democracy challenged their standing, the holders of traditional political power perceived it as an evil. Today, however, in all parts of the globe, all governments, including those led by authoritarian rulers, consider themselves democratic. Despite the universal values attributed to democracy, its outcomes are not uniform; gaps between the ideal and the reality raise controversial issues. The Meaning of Exploring a Political System The relationship between politics and institutions is two-sided. On the one hand, since politics is one of the institutions and has its own ‘law, morality, and customs,’ one must examine its legitimacy based on ‘morality’ as well as its legality based on practical ‘laws’ and traditional ‘customs.’ On the other hand, politics governs various areas of society through the enactment of laws, one of the three components of institutions. From the standpoint

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of morality, how far is the state allowed to regulate and interfere with the activities of individuals? Exploration of the ethics of democracy as a form of politics is concerned with these two issues. To put it differently, the first issue is about the political process and government structure in the ‘public sphere,’ and the second issue is concerned with the determination of social and economic institutions that regulate the ‘private sphere.’ Resolution of the two issues together constitutes the principles regulating the basic institutional structure of society. A third difference between political and economic voting is that the outcomes of political decision-making relate not to the ‘consequences’ for particular social states but to the ‘rules’ preceding them. Here the ‘rules’ are divided into the private and public spheres. In terms of Rawls’s principles of justice, what we call the first issue covers the stage in which the distribution of political goods (equal basic liberties) is determined, and what we call the second issue relates to the stage in which the distribution of social and economic goods (fair equal opportunity, social security, and the difference principle) is determined. Rawls’s concept of ‘social primary goods’ covers social, economic, and political goods; he frames the issue constituting the basic structure of society that defines the distribution of these goods among the members of society. Seen from a different angle, since his two principles of justice specifically aim at the formulation of norms prevailing in the public culture of democracy, they are interpreted as the identification of two democratic rules regulating the private and public spheres respectively. In political science, there are many definitions of politics in terms of the process of acquiring power. However, insofar as politics is a process, it must have an input process and an output process. The process of acquiring power means an input process of national energy. It is also important to see what is produced as the substance of governance from a certain configuration of power. Then, what is the output of politics? Politics, aiming at the governance of society, manages institutions in various fields of life in accordance with laws. In terms of the concept of goods, activities of the government involve the production of public goods, merit goods, and excellence goods through the collection of taxes. Rawls’s two principles deal with the two processes of input and output of a democratic political system as far as they are amenable to the concept of social primary goods. I think it is necessary to expand the process of output to include not only political, social, and economic performance but also cultural achievements. Below we will consider the ethical character of democracy with regard to its two elements (private and public spheres) and two processes (input and output processes), as well as the political relevance of capitalism and social security concomitant with democracy in the overall system of the welfare state.

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The Interrelationship between Capitalism and Democracy If economic philosophy deals with the ethics of economic institutions, political philosophy addresses the ethics of political systems. Although both philosophies are based on moral philosophy, they are also directly linked by the institutional perspective of the economy and politics, or capitalism and democracy. The basic relationship can be described as follows. Reflecting the differences between the private and public spheres, a market economic system is a framework for exchange based on ‘private property’ and ‘private interest,’ and a democratic political system is a framework for governance based on ‘private judgment’ and ‘public interest.’ The two systems are connected by the common denominator of individualism and disconnected by the conflicting perspectives of private and public interests. This union and disunion constitute the relationship between capitalism and democracy, or between the private and public spheres. Let us consider the practical shapes of union and disunion by examining the organizing principles of the economy and politics. Milton Friedman’s argument regarding the harmony between capitalism and democracy states that competitive capitalism is a necessary condition for political freedom, because an economic system of voluntary exchange rejects the interference of political power (Friedman 1962). But in reality, capitalism is not so simple as to ensure democracy. Economic inequality and concentration of wealth as a result of economic freedom might become a power to control politics and lead to the dominance of the political process by the so-called iron triangle of ‘politics, bureaucracy, and industry.’ Conversely, it is hardly true that democracy always promotes the development of capitalism. According to Schumpeter’s famous thesis, the development of rationality due to the success of capitalism has bred democratic and socialistic values; thus a government in favor of easy populism has sustained interference in the economy and hindered the rise of entrepreneurship, the dynamic source of economic development (Schumpeter [1942] 1950). This view has persistently supported the critique of the welfare state. In a capitalist market economy, coordination of the economy is carried out in principle by the impersonal mechanism of market prices. In a market of perfect competition as an ideal type, consumers and producers have no market power in that they must accept the market prices. But, Coase’s theory indicates, an organization’s (for example, a firm’s) organizing principle is different from the market principle. A firm’s principle is, so to speak, a principle of politics, which is the principle of governance, unlike the market exchange between equal partners. As John Galbraith argued in New Industrial State (1967), the development of rationality in business leads to the dominance of markets by monopoly, oligopoly, and cartels and the

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supersession of markets by the planning of big business. In a planned economic system, where the economy as a whole is controlled by political power, there is no market, so that the economy and politics are based on the same principle of governance by coercion. A similar state of affairs is likely to develop in a market system strongly influenced by monopoly, oligopoly, and the like, and the dispersion of economic power, characteristic of a competitive market, does not hold. It is a critical issue in the relationship between capitalism and democracy that unequal power over economic resources is not limited to the economic world alone, but affects the world of politics as well. Democracy claims to bring the source of political power to the people and to establish the sovereignty of people analogous to consumer sovereignty in markets. Democracy ensures that the people will exercise equal political power as voters in public decision-making on public issues. Of course, there are other routes to participation in the political process beside voting, such as law-making by politicians, implementation of policy by public servants, and policy proposal and review by critics. Apart from the fact that, according to the difference in qualifications, individuals have different degrees of power in the public sphere, people should not allow their positions to influence collective decision-making so as to benefit personally. Voting rights should not be affected by the amount of a person’s income; they should not be traded. Candidacy should not be prevented due to the unavailability of campaign funds or constituencies. Bribery and corruption in public office should be banned. All of these caveats mean that in democracy the political process should not be subordinated to economic and social power. It is for this reason that Rawls argued that the worth of political liberty should be almost the same for everyone. Analogous to oligopolistic markets, however, in the political market by voting, political parties, interest groups, and government officials have market power and collaborate on economic issues as the objects of public decision-making. Interest groups expect favorable political decisions from politicians in return for their donations and/or bribery, and bureaucrats act as mediators between economic power and political power at the level of policy implementation. This is the iron triangle of ‘politics, bureaucracy, and industry.’ Of course, there are conflicts of interest within the triangle, and the balance determines the actual distribution of power or resources. In short, the theoretical equality of political power in a democracy and the theoretical inequality of economic power in capitalism are incompatible in reality, because economic inequality produces inequality of political power over individuals and groups. This relationship between capitalism and democracy is promoted by the insertion of economic interests into politics, on the one hand, and the interference of politics in the economy,

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on the other. What is common to the two situations is that, despite the desired competition in markets and politics, the stabilization and solidification of the winner’s position take place through interactions between the economy and politics. Moreover, there are several moral problems specific to democratic institutions. First, when people motivated by private interests are confronted with collective decision-making on public issues in a democratic political system, they normally cannot expect to reach unanimity and must accept some majority rule. If democracy cannot establish such unanimity among its members, might it not be captive to the tyranny of the majority? Second, in the case of large nation-states, the participation of its members in public decision-making must be representative democracy, in which representatives are elected by the citizenry to discuss and resolve issues in councils or diets. The party system is also adopted, and representatives are divided into plural parties and factions. Consequently, in reality democracy is a struggle for votes by politicians and political parties and induces their cooperation with interest groups. What kind of ethical values could inhabit such a form of democracy? Third, apart from jurisdiction, the government functions by the machinery of administration and legislation. Whereas the legislature is formed by elected representatives, the bureaucracy is responsible for administration. The democratic ideal that the governed should govern the governors means control of the bureaucracy by the people or their representatives. But in view of the disparities of information and ability among politicians, bureaucrats, and people at large, is such self-governance possible? Theoretical Problems of Democracy These three critical views represent major disputed issues of democracy from the viewpoint of institutions, such as majority rule, representatives, political parties, and a bureaucracy. But they are derived from the basic question, when people with plural values on public issues participate equally in the political process of democracy, how can they make a rational decision? Given the diversity of preferences, beliefs, and ideals among people, how the mechanism of collective decision-making works is the most fundamental question of democracy. Therefore, the basic value premise of democracy is the ‘tolerance of value plurality’ rather that the ‘governance by the people’; the former idea underlies the latter. In response to this question, three methods are available to reach a consensus: aggregation, bargaining, and deliberation (Elster 1998, pp. 5–6). Aggregation is a way of reaching a decision by majority vote. Bargaining or logrolling is a trade of the pros and cons of a plural agenda by the

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participants. Deliberation is the transformation of preferences through rational argument based on an impartial position. The three methods are not mutually exclusive but can be used in combination. Corresponding to these three procedures, democratic theory has developed three theoretical problems that are distinguished in terms of their ‘logical, functional, and normative’ dimensions. The first problem is a logical one; it is focused on the relationship between private and collective decision-making and corresponds to the ‘aggregation’ method. Welfare economics, social choice theory, and theory of collective action all have addressed this problem. The second is a functional problem of democracy, which is contrasted with the view of democracy as a normative system for the distribution of political power. Democracy is seen as a functional system leading to collective decision-making. This view was familiarized by Joseph Schumpeter and later established as the theory of public choice. From this point of view, democracy is primarily a scheme of reaching consensus by bargaining and logrolling and becomes the object of empirical research in economics and sociology. The third and rather traditional problem of democracy is a normative one, which centers on the ideal for justifying democracy. The normative dimension of democracy involves the question of how a series of moral principles are incorporated in the institutions of democracy, and relies on the method of deliberation for the coordination of plural values. Problems concerning the institutions of democracy, such as majority rule, representation, political parties, and a bureaucracy, will be treated in light of the three practical methods and the three theoretical dimensions for reaching social decisions. Let us now describe this framing of issues in terms of our ethical framework of ‘institution, act, and existence.’ The essence of democracy as an ‘institution’ is the ‘tolerance of plural values.’ Even if it causes difficulties in reaching consensus, such tolerance must be understood as the basic value premise of democracy. However, although the solution of public issues based on the general will under the assurance of value plurality is a theoretical ideal of democracy, democratic ‘institutions’ do not ‘logically’ satisfy the need for incentive compatibility. This means that the institutions do not lead to the desired results assuming the usual motivation of self-interest. This is the most important difference between a democratic political system and a market economic system. Whereas in a market system the so-called invisible hand works so that the social purpose of efficient resource allocation satisfies incentive compatibility, there is no assurance in a democracy that an ‘invisible hand’ works similarly to realize the common will of the people. The interpretation of an individual ‘act’ in the public sphere can move in one of two directions. The first direction is to abandon the social purpose

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of the democratic system and to be concerned only with the ‘functional’ process to arrive at political decisions, whatever they may be. The individual ‘act’ is regarded as if it were located in the private sphere. The second direction is to maintain the social purpose and aim for a ‘normative’ solution so that the citizenry’s ‘existence’ is educated by public reason exercised by deliberation. Thus the three dimensions of democratic theory become the objectives of the three ethical approaches.

5.3

THE LOGICAL DIMENSION AND VALUE PLURALITY

Arrow’s Social Choice Theory The social choice theory initiated by Kenneth Arrow in a modern form deals with the logical process in which collective choice can be derived from the aggregation of individual preferences; it belongs to the investigation of the ‘logical’ dimension of democracy (Arrow [1951] 1963). Arrow’s challenge was to find a procedural rule (social aggregation rule) that derives a social ordering from a set of all individual orderings about alternative social states. Under the rule he posed four conditions: (1) unrestricted domain, (2) independence from irrelevant alternatives, (3) use of Pareto criterion, and (4) nondictatorship. His conclusion – so-called impossibility theorem – was that it is impossible to find a social aggregation rule that satisfies these four conditions. A rule that satisfies conditions (1)–(3) contradicts condition (4). If this conclusion is taken seriously, we are confronted with the striking proposition that democracy does not exist logically. However, Arrow’s impossibility theorem is based only on specific conditions and is not universally valid. In fact, an enormous amount of literature on social choice theory has produced various attempts to modify his assumptions. Among these, the most important interpretation is Amartya Sen’s. Sen argues that Arrow’s approach excluded all information other than individual utility and rejected interpersonal comparisons of utility; instead, Sen proposes the informational basis of social choice.2 The exclusion of nonutility information in evaluating social states means making a social choice without regard to liberty, rights, and the like; the rejection of interpersonal comparisons of utility means making a social choice without concern for inequality of income, difference in need, and so forth. An examination of the informational basis of social choice is not a mere formal problem but establishes the moral basis for public decisionmaking. Arrow attempted to derive judgments on social good only on the basis of the Pareto criterion with ordinal welfarism. Although he perhaps

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wanted to work on the least problematical value basis, his criterion cannot make judgments on social welfare except where there is no conflict between individuals in terms of utility; therefore the decision must be left to a dictator under the assumed formal alternatives. In contrast, various positions in moral theory can give definite answers on social welfare. For instance, utilitarianism employs the criterion of the social aggregate of individual utility assuming cardinal utility and interpersonal comparisons of utility. Rawls’s contractarianism uses the criterion of the state of the worst-off in terms of the distribution of social primary goods, departing from the dimension of utility. As these cases show, an introduction of more information relevant to individual well-being is needed through a choice of the most appropriate value premises for a democratic political process. Sen contended that the ‘liberal paradox’ is at the core of the issue (Sen [1970] 1982). It asserts that no social aggregation rule exists under the assumptions of unrestricted domain, the Pareto criterion, and liberal rights. This theorem also stimulated a large number of interpretations; but after all, it was confirmed that the democratic claim of agreement and the rights of freedom are not compatible unconditionally and that some moral restraints on individuals in the private sphere are necessary. Thus what appears at a glance to be a purely ‘logical’ problem of aggregating the individuals in society now becomes a ‘normative’ problem of choosing and committing to a moral theory. In other words, what matters is no longer a meta-theoretical method of value aggregation but the choice of a substantive moral theory appropriate to democracy. As I suggested, the relationship between individuals and society, from the viewpoint of a normative dimension, is concerned not with ‘aggregation’ of given preferences but with ‘deliberation’ on the assumption of revised preferences. Before considering the normative dimension, it is necessary to examine the philosophical implications of the logical problem of the relationship between man and society. What is meant by ‘value plurality,’ that is, the antecedent of preference aggregation and the basic value premise of democracy? Reasonable Pluralism When individual liberty is secured, people are free to pursue their various goals, desires, and interests in the private sphere. Also in the public sphere, there are plural values for evaluating acts, existence, and institutions. As argued in Chapter 1, section 1.3, value is a criterion for evaluating the objects of human interest. In light of the evaluating criterion, man recognizes, assesses, and chooses his objectives in different fields of life. Values are preferences, lifestyles, the Weltanschauung, and ideals and include

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religious, moral, and metaphysical beliefs; they are multidimensional and multilayered. Value pluralism asserts that the plurality of evaluating criteria is desirable. Then, what is meant by ‘value pluralism’ in democracy? Democracy is politics that allows as well as overcomes value pluralism. We have understood that democracy is a political process that is accompanied by coercive power and that a political process involves the determination of issues in the public sphere. It follows, first, that it is not the task of politics to sublate value plurality in the private sphere. Values in the private sphere are amoral values and are more accurately called ‘taste.’ De gustibus non est disputandum (There is no disputing tastes). Noninterference in the private sphere by the government is the basic construct of liberalism. The criterion of right determines where the boundary of the private sphere is to be drawn. The pursuit of plural individual goods is allowed under the constraint of right; this is the thesis of the supremacy of right over good. Second, in the public sphere where the issues of right or just social institutions are debated, there is a different kind of value plurality. Values in the public sphere are moral and political values relating to public issues. Among various conflicting values, what Rawls calls ‘overlapping consensus’ must be sought under the conception of justice. The conception of justice must be accepted not only by those with various tastes in the private sphere, but also by those with various moral and political values in the public sphere. Plurality guaranteed by democracy in the public sphere can exist under the conception of justice that is shared by moral citizens who possess the power of good and right, or rational and reasonable power. This leads to the concept of reasonable pluralism (Rawls 1993, p. 36). Democracy is characterized by reasonable pluralism, which, contrary to mere pluralism, means that various values, though they conflict with one another, are fair and impartial. The nature of such values is that although citizens cannot accept them as their own beliefs, they acknowledge their existence. To put it differently, each of various conflicting values be part of overlapping consensus with regard to the conception of justice. Reasonable pluralism is two-sided; it allows various values in the private as well as the public sphere. The conception of justice shared by people mediates the two kinds of pluralism in the two spheres. Sharing the conception of justice means sharing the institutions embodying that conception. Practically speaking, reasonable pluralism is ensured by the principles of justice that control the economic market of capitalism and the political forum of democracy. This image appears in Figure 5.3. In Figure 5.3 the principles of justice represent an overlapping consensus between the two kinds of value plurality in the two spheres. They are the joint linking the two spheres. In the two spheres, plural values of tastes and the Weltanschauungen flourish vigorously. Figure 5.2 indicated that

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Plurality in

Plurality in public sphere

Principles of justice

(democracy)

Figure 5.3

private sphere (capitalism)

Reasonable pluralism

institutions link the private and public spheres. Since the principles of justice should be embodied in the institutions, Figures 5.2 and 5.3 show one aspect of an integrated approach to values and institutions. Although democracy endeavors to integrate plural values in the public sphere to solve public issues that affect the framework of the private sphere, this attempt should not be independent of the principles of justice for institutions. As Sen called Arrow’s results of the impossibility theorem ‘constructive pessimism’ (Sen 1999a, p. 350), so the theorem stimulated inquiries into the overlapping consensus as the premise of democracy. Efficiency, Liberty, and Diversity Why is plurality in the two spheres of life desirable? It is essential to produce excellence in human ability and activity. At the opening of his On Liberty ([1859] 1977), John Stuart Mill quoted a passage of Wilhelm von Humboldt ([1792] 1854), who believed in ‘the absolute and essential importance of human development in its richest diversity,’ and strove to combine the contentions of liberty with the development of individuality and diversity against unifying social control. Humboldt thought the combination of ‘freedom and a variety of situations’ produces the originality of human power and development. Although Mill supported utilitarianism, he made much of the perfection and excellence of human ability as a crucial component of well-being and is better regarded as a perfectionist. In addition to Humboldt and Mill, it is useful to consult the view of John Maynard Keynes: Let us stop for a moment to remind ourselves what these advantages [of individualism] are. They are partly advantages of efficiency – the advantages of decentralisation and of the play of self-interest . . . [A]bove all, individualism, if it can be purged of its defects and its abuses, is the best safeguard of personal liberty in the sense that, compared with any other system, it greatly widens the

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field for the exercise of personal choice. It is also the best safeguard of the variety of life, which emerges precisely from this extended field of personal choice, and the loss of which is the greatest of all the losses of the homogeneous or totalitarian state. For this variety preserves the traditions which embody the most secure and successful choices of former generations; it colours the present with the diversification of its fancy; and, being the handmaid of experiment as well as of tradition and of fancy, it is the most powerful instrument to better the future. (Keynes 1936, p. 380; italics added)

Keynes added ‘variety’ to the traditional pair of market ideals, ‘efficiency and liberty,’ dividing it into three categories to sustain and broaden (1) the ‘traditions’ of the past, (2) ‘fancy’ for the present, and (3) ‘experiment’ for the future. For him, ‘efficiency, liberty, and variety’ were the merits of free politics, economy, and society. Nevertheless, Keynes regarded the unequal distribution of income and wealth and unemployment as the two outstanding defects of a free society and made ‘social stability and social justice’ the pillars of economic policy (Keynes 1972a, p. 306). Thus for Keynes, overlapping consensus to safeguard plurality in the private and public spheres underlay a ‘stable and just’ social system. In practice, this was the Keynesian full employment policy and the Beveridgean social security system. Although Keynes’s moral philosophy is beyond the scope of this argument, based on his criticism of actuarial calculations of future values and the hedonistic conception of good in utilitarianism, it is certain that his ideals of liberty and variety were linked to perfectionist morality under the influence of G.E. Moore (Shionoya 1991).

5.4

THE FUNCTIONAL DIMENSION AND THE COMPETITIVE SYSTEM

Schumpeter on Democracy In his Capitalism, Socialism and Democracy ([1942] 1950), Joseph Schumpeter criticized the traditional theory of democracy as illusory and proposed instead the notion of ‘democracy as method.’ According to him, the traditional theory is summarized in the proposition ‘that “the people” hold a definite and rational opinion about every individual question and that they give effect to this opinion – in a democracy – by choosing “representatives” who will see to it that that opinion is carried out’ (ibid., p. 269). Opposing this notion, Schumpeter gave an alternative definition as the basis for his theory of democracy: ‘The democratic method is that institutional arrangement for arriving at political decisions in which individuals acquire the power to decide by means of a competitive struggle for the

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people’s vote’ (ibid., p. 269). For him, democratic politics rarely realizes the will of the people, and even the will of the people and the public interest do not exist on behalf of the people but are manufactured by political propaganda. In terms of the motives and incentives of the actors, democratic politics is a struggle for the vote, driven by the self-interest of professional politicians who want to advance to higher office. Indeed, the procedural conditions of democratic politics are formally satisfied through citizens’ participation in elections for representatives, but it is far from certain that democracy realizes the public interest and provides people with equal political power. Schumpeter held that by departing from the illusion of democracy, an understanding of politics would be greatly improved. The significance of his contention is the limited statement that democracy is an institutional arrangement or political method for arriving at public decision-making and for implementing decisions through the legislature and the administration and nothing more. This approach parallels the view, discussed with regard to the economic system in Chapter 4, section 4.2, that the direct motives of human activity and its social purposes should be distinguished. Another feature of Schumpeter’s argument is that both democracy in the political system and the market in the economic system are commonly treated as competitive systems; in other words, they are regarded as the forum in which entrepreneurs and politicians appear as innovative leaders as a result of competition. This idea underlies Schumpeter’s system of universal social science, in which the static order and dynamic innovation are distinguished in every branch of social activity; innovation destroys existing order and creates a new path by elitist leadership and acts of excellence (Shionoya 1997). Competition not only creates positive things but also liquidates negative things. On this point too, the analogy of political competition with market competition is obvious. In markets, competitive pressures expel inefficient firms and industries. In the political forum, as far as free, competitive elections take place among opposing political parties, the government that pursues repressive, unjust, and unpopular policies will eventually be defeated at the polls. Only if democracy admits plural parties and free elections, will it ensure individual liberty better than any other political system. Amartya Sen insightfully observes that even in poor developing countries, tragic situations like hunger cannot occur if democracy works (Sen 1981). Schumpeter’s non-normative theory of democracy has not only stimulated empirical research of political markets and behavior, but also clarified the instrumentality of democracy to produce political leadership through its competitive function. In this sense, the criticism of his theory by normative political philosophers – that it does not take into account

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democratic values – is invalid. This criticism coincides with economists’ failure to understand that the pursuit of self-interest in competitive markets socially and unexpectedly leads to an increase in economic welfare, increased efficiency, and technical innovations. That is not all. We must take into consideration Schumpeter’s famous thesis that capitalism is sacrificed by its success in economic development. It was in this context that he developed his leadership theory of democracy. For him, leftist opinion and policy in the guise of the general will in the traditional theory of democracy was partly responsible for the decay of capitalism. His idea of democracy based on elitist leadership was carefully formulated to save capitalist society from the tyranny of the masses. Although he claimed that his theory denigrates democracy to a mere political arrangement, it is in fact highly ideological. Weber on Democracy Schumpeter’s theory of democracy had a great influence on political science after World War II, but it resembles Max Weber’s political theory in two ways. First, Weber regarded the traditional theory of democracy as the will of the people as a fiction, and second, he interpreted democracy as ‘plebiscitary leadership democracy’.3 In combination, call these two views the ‘Weber–Schumpeter thesis.’ Many scholars have identified the core of Weber’s broad interest in social science with rationalization in the modern world, and it is the bureaucracy that carries out the rationalization process in the field of politics. Bureaucracy is a strict hierarchic order that depends on purely formal legitimacy; bureaucrats are equipped with rigid functional disciplines and superior knowledge. According to his sociology of dominance in Wirtschaft und Gesellschaft, three types of legitimate dominance are legal, traditional, and charismatic authority (Weber [1922] 1968, p. 215). Whereas legal authority and traditional authority maintain ordinary order, charismatic authority is characterized by creativity, revolutionariness, and nonordinariness. Bureaucracy is a form of legal dominance. Weber contrasted bureaucracy with the party system and advanced the idea of controlling the dominance of bureaucracy through parliamentary democracy. Without a controlling mechanism, a growing bureaucracy only serves the ambition of bureaucrats and its cozy relationship with industry. Since bureaucracy is not obligated to make a judgment about ‘value rationality’ as distinct from ‘instrumental rationality,’ bureaucrats cannot effect a breakthrough in a critical situation. The idea of ‘plebiscitary leadership democracy’ is that a party system should shift political power from bureaucrats to politicians in order to achieve leadership democracy by charismatic authority.

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To exaggerate, in ‘plebiscitary leadership democracy’ the parliament is a competitive forum for enjoying popularity with the people rather than for discussing public issues, standing by public opinion. Political leaders try to win voter support by presenting their beliefs, whether demagogies or visions. This form of politics counters not only bureaucratic dominance but also pressure groups, which are becoming more and more pluralistic in our industrial society. Although democracy as a voting system does not always produce desirable leaders, competition is the only mechanism that makes possible the rise of excellent leaders. Bureaucracy is merely an efficient and conservative mechanism for administration that executes orders given by the leadership. Leadership and innovation in politics emerge only out of competitive positions presented to voters. Whereas the traditional doctrine of democracy maintained the ideal of natural law in a consecutive political process consisting of the expression of the people’s will, the election of representatives, and the realization of the people’s will, Weber emphasized the election of representatives. However, this does not mean that he was indifferent to the realization of the people’s will, much less to the notion that leadership democracy will lead to Nazism. His insight was that the liberty and equality of autonomous individuals are not expected to be realized spontaneously in a plural mass society and should be the responsibility of political leaders. Thus, Weber argued, a parliament has important functions: to maintain openness of the governance of public policy, to coordinate the interests of plural powers in society, to select politicians, and to protect the people’s civil rights and liberty. The Weber–Schumpeter thesis is concerned with the dynamic process of the political market from the viewpoint of the ‘functional’ dimension of democracy. Nevertheless, this thesis can anticipate the realization of leadership and excellence in politics as the unexpected social consequence of competition. The Interpretation of Political Power In the previous chapter, the three models of ‘record, struggle, and cooperation,’ identified with competitive markets, raised ethical questions of ‘excellence, justice, and trust’ respectively. Analogously we can speak of competitive political markets. First, performance of ‘record’ means excellence in political leadership, as mentioned in regard to the Weber–Schumpeter thesis. Whereas the maintenance of political power is a routine, the acquisition of power by new leaders is an innovation. Second, ‘struggle’ is symbolic of the political world and represents the facts of political strife for scarce positions. Third, ‘cooperation’ means the

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acknowledgment and support of the execution of power, aiming at cooperative collective decision-making in the community. The second and third models view politics as a zero-sum game or plussum game respectively; they are called the two ideal types in the theory of political power. But ‘struggle’ and ‘cooperation’ in politics are to be regarded as coexisting, not as exclusive. My positive contention is that ‘excellence’ in political power should be emphasized in addition to ‘struggle’ and ‘cooperation.’ The Problem of Knowledge in Politics Even if the voters award political posts to various contenders for office, other conditions are required for Schumpeter’s elitist democracy or Weber’s plebiscitary leadership democracy to be effective. One concerns the politicians’ relationship with pressure groups as organized voters; the other, their relationship with bureaucrats. Politicians are rarely charismatic leaders. The image Weber and Schumpeter had in mind was active, innovative politicians who inspire electors with their visions. To win elections, ordinary politicians are prone to serve pressure groups by appealing to their economic interests. On this point, bureaucrats generally might take pride and faith in their impartial judgments on public issues on a supra-partisan basis. But if the masters of bureaucrats are politicians in a democracy, policy-making is likely to favor the pressure group. This leads to the iron triangle of ‘politics, bureaucracy, and industry.’ In a collision of bureaucracy and parliament, the power of bureaucrats is protected by the information they exclusively possess. It is necessary for politicians to have enough knowledge to design policies that they have promoted in their campaigns. In economic markets, participants need only dispose of information locally because there is an impersonal universal system for pricing. In political markets, on the other hand, politicians must have overall knowledge of various fields of society to develop policies. Hayek asserted that it is impossible to collect information in a centralized way. Even secret information held by a bureaucracy is not so systematic and inclusive as to permit the formulation of policy; secret information remains partial due to bureaucratic sectionalism. The dominance of bureaucracy in policy-making given such an informational defect creates the strong possibility of ‘government failure.’ The legislature will be handicapped in collecting and analyzing information. But Weber emphasized that politicians, confronted with the paradox of two conflicting maxims, are obligated to accept an ‘ethics of responsibility’ for the whole consequences of policymaking rather than an ‘ethics of ultimate ends’ (Weber [1919] 1947, p. 120).

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Thus, for Weber’s plebiscitary leadership democracy to work, politicians should have charismatic qualities, be detached ethically from the partisan interests of society, and be informed about professional matters. Otherwise, the actual picture of democracy will show interest-led policy and bureaucratic domination. To make the implications of the Weber–Schumpeter thesis clearer, it is useful to refer to Hayek’s view of the efficient utilization of knowledge. Traditional economic theory assumed that the price mechanism leads to economic equilibrium through its parametric function, given tastes, technology, and resources. Hayek’s criticism was that assuming these givens excludes from the beginning the problem of resource allocation, which should be solved by an economic process. It is the price mechanism that solves the problem: by its barometric function, it first collects information on tastes, technology, and resources scattered among economic agents; then, by its parametric function, it solves the allocation of resources for the economy as a whole. Hayek cast a new light on the functions of the price mechanism as the discovery, collection, and coordination of information. But economic theory, though modified by his insight, was still static. Schumpeter’s dynamic economic theory based on the idea of innovation started from the criticism of static economic theory. An analogy is illuminating here. Corresponding to the two functions of the price mechanism, namely the functions of barometer and parameter are the two functions of the democratic political system: (1) collecting people’s political opinions and (2) executing decisions through a collective process. The traditional theory of democracy understands, first, that the general will or public interest is a given, just as preferences, technology, and the like are assumed as given in traditional economic theory, and second, that politicians as public servants implement those givens faithfully and automatically, so to speak, as if politics were not a problem. The Weber–Schumpeter thesis rejects this view of traditional theory as unrealistic. In reality, with regard to the collection of information, interest-oriented politics is dominant, and this function only responds to the needs of pressure groups and supporting organizations; with regard to political decision-making, the position of bureaucrats with relatively large amounts of information predominates. The two issues are both relevant to the scope and role of knowledge in politics. When combined, interest-oriented politics and bureaucracy-led politics establish the iron triangle of ‘politics, bureaucracy, and industry’ and pose a serious challenge to democracy. What Schumpeter feared was the Red iron triangle, developed by the same processes; this, he believed, was the ultimate threat to the capitalist economic system. But this is not the whole story of the Weber–Schumpeter thesis. The role of Schumpeter’s innovative political leaders and Weber’s charismatic

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politicians is the dynamic factor in democracy. Since democracy is a framework of political governance based on individualism, the coordination of private judgments and public interests in the public sphere is the crux of the democratic ideal. Instead of the traditional, bottom-up model of democracy, the Weber–Schumpeter thesis, rooted in the realistic observation and dynamic interpretation of the democratic process, describes a top-down model that focuses on private incentives and innovation similar to those of a competitive market. Weber and Schumpeter thought that competitive democratic politics provides the dynamic forum for producing leaders who can destroy populist democracy and bureaucratic authority. The Weber–Schumpeter model of democracy is not just an institutional arrangement for arriving at political decisions, as they maintained, but also has the substantive content of elitist democracy or innovative democracy. Only such content can oppress populist politics derived from the abuse of the traditional theory of democracy. How is this idea possible in practice? Conditions for a Successful Democracy Schumpeter cited four conditions for a successful democratic method, conditions that would stave off ochlocracy and elitism and maintain a selfreinforcing democracy: (1) politicians of high quality, (2) a limited range of political decisions, (3) a competent bureaucracy with a strong public spirit, and (4) a society composed of highly intellectual and moral people (Schumpeter [1942] 1950, pp. 289–96). Of political leaders – condition (1) – Weber wrote: The plebiscitarian leadership of parties entails the ‘soullessness’ of the following, their intellectual proletarianization, one might say. In order to be a useful apparatus, a machine in the American sense . . . the following of such a leader must obey him blindly . . . This is simply the price paid for guidance by leaders. However, there is only the choice between leadership democracy with a ‘machine’ and leaderless democracy, namely the rule of professional politicians without a calling, without the inner charismatic qualities that makes a leader, and this means what the party insurgents in the situation usually designate as ‘the rule of the clique’. (Weber [1919] 1947, p. 113)

The reason for limiting political decisions – condition (2) – is to avoid large-scale ‘government failure.’ Condition (3) would support the inevitable amateur politicians. In a democracy, the imperative of the supremacy of politicians over bureaucrats does not mean that bureaucrats should be inferior but that politicians should be superior. The relationship between politicians and bureaucrats is relative, and the bureaucracy becomes dominant only through the incapacity of politicians. Condition (4) would ensure

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democratic self-control. Electorates and politicians must have a high level of intelligence and morality, comply with public decisions, be tolerant of differences of opinion, and speak out against political corruption. The Weber–Schumpeter thesis is a unique argument for the ‘functional’ dimension of democracy. Its seemingly non-normative approach unexpectedly leads to the issues of ability and morality of political agents in a democracy. Thus we arrive at the ‘normative dimension.’

5.5

THE NORMATIVE DIMENSION AND PUBLIC REASON

Public/Private and Government/Private When political scientists speak of models of democracy, they use several typologies that are characterized by different values. The original typology, developed by C.B. Macpherson (1977), included protective democracy (J. Bentham, James Mill), developmental democracy (John Stuart Mill), equilibrium democracy (Schumpeter), and participatory democracy (present). Since then, more types have been added.4 These typologies of democratic thought are arranged in chronological order without a theoretical construction. Let us examine the normative dimension of democracy from the viewpoint of Rawls’s liberal egalitarianism. In an ideal type of society, where his principles of justice prevail, or in a ‘well-ordered society,’ free and equal moral persons have the powers of good and right, or the rational and the reasonable. They consciously share the principles of justice agreed upon as a social contract in the ‘original position.’ Now consider that in a ‘democratic society,’ which is different from the well-ordered society or the original position, free and equal citizens participate in the discussion of public issues relating to the basic framework of society and in other political activities including voting. What views do they hold in the political forum? Rawls calls the intellectual and moral capacity of citizens in a democratic society ‘public reason’ (Rawls 2001, s. 26). Free and equal citizens in a democracy constitute a notional entity of the ‘public’ as an aggregate identity of the ‘private’ through consensus or contract. Although politics is governance by coercive power, a value premise is imposed on democratic institutions that the governors and the governed are the same. Therefore, the nature of political power in a democracy is such that the ‘public’ as an aggregate identity derived from the ‘private’ should govern the ‘private.’ Even if the state apparently governs its citizens through a political process, ideally the state and the society should be

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governed through the equal participation of citizens. If the total state machinery – consisting of a legislature, an executive administration, and a judiciary – is called the government, the ideal of democracy is that the ‘public’ should govern the ‘government.’ In short, the ‘public’ and the ‘government’ should be distinguished in a democracy. In economics or public economics, the public sector in the sense of the ‘government’ as used here is sharply separated from the ‘private’ sector. In moral and political philosophy, such separation does not hold: the ‘public’ is an aggregate of the ‘private’ and made from the ‘private’ through consensus or contract between free and equal citizens. Principles of Justice and Public Reason Figure 5.4 depicts the relationship between morality and politics, or between moral persons and citizens in terms of what might be called the ‘equivalence of the trinity in moral and political theory.’ It distinguishes between Rawls’s three states of society: a well-ordered society, the original position, and a democratic society. These states should not be confused. First, it is supposed that in a well-ordered society as the ideal, free and equal moral persons have the moral powers of good and justice. Second, to infer the principles of justice that prevail in a well-ordered society, the conditions of moral persons are broken down into two elements (rational and reasonable) and transformed into the hypothetical original position, in which rational persons in pursuit of the good are to choose the principles for the basic structure of society under a veil of ignorance. Third, a democratic society is the real world, where free and equal citizens practically solve public issues including institutions and policy with public reason to apply the principles of justice. A shift in the perspective from moral to political means a shift in the concept of persons from moral persons to citizens together with the emergence of political rights and duties. In the world of politics, citizens not only share the principles of justice; they also are required to possess the criteria or guidelines of inquiry for judging, inferring, and thinking about public issues. Thus Rawls stipulates that the political conception of liberalism consists of the principles of justice and the guidelines of public reason (Rawls 1993, pp. 223–4). What is equivalent between the three states in Figure 5.4 is the totality of values in terms of the behavior of agents and the informational basis of moral judgments, and is represented in different forms according to the different tripartite stages. In Figure 5.4 an inference similar to the original position in deriving the principles of justice is adopted for the democratic political process to determine actual policy and institutions. In the actual democratic process, the derivation of the principles of justice is no longer necessary; they are

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Figure 5.4

Principles of justice

Equivalence of the trinity in moral and political theory

Veil of ignorance (Reasonable)

Rational person (Rational)

Free and equal moral persons

(Idea of good) (Sense of justice)

[Original position]

[Well-ordered society]

(Public reason)

Free and equal citizens

[Democratic society]

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already derived in the original position and are legislated in a constitutional congress. Free and equal citizens in the public sphere are now required to make decisions using the mechanism of public reason. The concept of public reason constitutes the guidelines for implementing the principles of justice in the actual world of politics. It is different from instrumental reason in the private sphere. With regard to the functional model of democracy discussed above, public reason is the ability to assimilate fair and impartial knowledge; it is an informational apparatus for leading to the outcome of the allocation of political power from the normative viewpoint. The crux of the difference between Rawls’s A Theory of Justice and Political Liberalism is the relationship of the trinity (Rawls 1999b, pp. 614–15). In A Theory of Justice, the principles of justice constitute a comprehensive liberal doctrine shared by all people in a well-ordered society. But Rawls was compelled to accept the criticism that, since people adhere to a variety of religious, moral, and philosophical doctrines, no liberal society can exclude plurality of thought. In Political Liberalism, he tried to answer a different question: how can people with different beliefs share the same political conception of justice that supports a well-ordered democratic society? As this ideal society was represented by the well-ordered society and the original position, he now introduces the idea of ‘public reason’ as the leverage of public decision-making in a democratic society. Public reason is characteristic of democratic people. Rawls mentions three meanings of ‘public’ in public reason: (1) the holders of public reason represent the public, namely free and equal citizens; (2) its subject matter is the good of the public, namely matters of fundamental justice; and (3) its nature and content are public, namely the justification of public decisionmaking by the shared principles of justice, or justification through ‘reciprocity’ and ‘recognition’ of the viewpoints of citizens (Rawls 1993, p. 213). In other words, the concept of public reason consists of the three different aspects, that is, who, what, and how of public reason. The holders of public reason in a democratic society are free and equal citizens, and the public issues they confront in the political world are ‘constitutional essentials and questions of basic justice’ (Rawls 1993, p. 214). In addressing the public issues, they try to apply the two principles of justice to actual institutions, namely to derive the constitutional structure and political process from the first principle concerning equal basic liberties and rights, and to derive social and economic institutions from the second principle concerning distributive justice. Public reason is the apparatus for solving these two kinds of public issues; it consists of intellectual and moral abilities to facilitate citizens’ political roles. Compared with the qualities of moral persons, public reason includes political virtues in addition to the concept of good and the sense of justice. Political virtues

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are the virtues of cooperation in maintaining the political system of justice. According to Rawls, the content of public reason is reciprocity and recognition among citizens. Introspection and Consensus Methodologically, Rawls’s derivation and justification of the principles of justice in A Theory of Justice contain two elements. One is to derive moral principles from basic premises in accordance with the methods of rational model building, which he calls ‘Kantian constructivism.’ The other is to justify the derived moral principles in accordance with the ordinary moral judgments of people; this procedure is called ‘reflective equilibrium.’ The two are linked by ‘basic premises, moral principles, and moral judgments’ and form a so-called wide reflective equilibrium. ‘Wide’ means that in contrast to ‘narrow’ reflective equilibrium, or partial coordination of moral principles and moral judgments, total coordination between the three items is repeated by changing the basic premises per se. As the term ‘reflective equilibrium’ suggests, Rawls treats the issue of justification as individual introspection. People compare alternative moral principles and revise their moral judgments upon reflection in light of a plausible candidate principle. Since reflective equilibrium is achieved not only within one individual but also within all individuals at the same time, its purpose is to establish interpersonal consensus. But what mediates between individual introspection and social consensus is not shown in A Theory of Justice. Moving from the moral discussion in A Theory of Justice to the political discussion in Political Liberalism, it is argued that Rawls directly encounters this problem and raises the idea of public reason. But in his discussion of democracy, Rawls thinks that an inquiry should be made within the frame of the established conception of justice, presupposing mutually shared criteria for evaluating the issue. This means that public reason is obtained not through a dialogue or discourse but through an introspective monologue, and that the result of that monologue should rule the dialogue and discourse. A comparison with the thought of Jürgen Habermas, who treats moral principles as discursive ethics, will be instructive. Rawls and Habermas Habermas’s discourse ethics is based on his social theory of communicative action (Habermas [1981] 1984–87). Communication is interactive action for understanding, persuasion, and recognition between agents who make a case for the validity of their views, and a social system is established by consensus as a result of that communication. Habermas finds social rationality

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in communicative action. Specifically, agents raise claims of validity with regard to the scientific truth, the normative rightness, and the subjective sincerity of statements. Communicative rationality, in contrast to specialized scientific, cognitive, and instrumental rationality, is comprehensive rationality, which should govern what Habermas calls the ‘ordinary lifeworld.’ Habermas’s argument is in the realm of discourse ethics because the three strict conditions cited above are imposed on agents in communication, and communicative action is carried out as a normative interdependent act under an ideal speech situation. The idea of communicative rationality that consensus determines social norms finds validity in democratic institutions. Therefore his theory can be seen as an approach to deliberative democracy. As Habermas mentions, both he and Rawls must achieve universalizability of principles to overcome plurality of values (Habermas 1995, p. 117). But, whereas Rawls neutralizes value plurality from the start through the apparatus of the original position, which limits the information that enables people to have a common perspective, Habermas finds the source of normativity within interpersonal communication, which broadens the outlook of people so they can share a common perspective. Consequently, although both scholars assume that consensus among free and equal persons is inherent in a democratic system, Rawls only requires the recognition of principles through introspection and monologues; in contrast, Habermas demands consensus through actual dialogues and discourses (Nino 1996, pp. 107–17). This comparison also indicates the limits of Habermas’s communication theory. For Rawls, reflective equilibrium secures the stability or acceptability of moral principles; it does not produce the moral principles per se. They are derived in a constructive way in the original position that is characterized by the rational and reasonable. For Habermas, in contrast to Rawls, the speech act is extended from introspection to discourse, or from a monologue to a dialogue, and the derivation of substantive moral principles is expected from the communication in which a rule of argumentation is satisfied. But Habermas’s discourse ethics does not determine the content of moral principles but only provides the procedures for deriving them; they are left to be determined through discourse. In Habermas, there is neither a model comparable to the original position nor a moral principle comparable to the two principles of justice. He shows only the formal requirements for discourse – that the norms must be accepted by all participants and be beneficial to all. In other words, what corresponds to the conditions of Rawls’s original position is imposed on the actual forum of discourse in Habermas. The environment in which these conditions are satisfied is called an ideal community of communication. Habermas expects that these conditions will be realized in the public decision-making of a democracy.

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Rawls does not accept the criticism that his reflective equilibrium is a monologue. He introduces the concept of ‘general’ reflective equilibrium in addition to ‘wide’ reflective equilibrium, and calls the totality ‘full’ reflective equilibrium (Rawls 1995, pp. 140–41). ‘General’ means that principles are affirmed in everyone’s judgment, not just that of a single person. With ‘full’ reflective equilibrium, people have achieved ‘wide’ and ‘general’ reflective equilibrium. Rawls thus states that a well-ordered democratic society is deliberative democracy combined with the exercise of public reason (Rawls 2001, pp. 148, 150). However, although Rawls’s concept of public reason can be extended to discourse and dialogue, Habermas maintains that since the derivation of the principles in the original position is based on consensus among persons with common information and a common perspective, the consensus is still a monologue. Habermas distinguishes between the principle of universalizability and the principles of discourse ethics (Habermas [1983] 1990, pp. 65–6). This comparison of the thought of Rawls and Habermas gives rise to two different interpretations of public reason in a democracy. For Rawls, the liberal principles of justice have already been derived under the formal conditions of the original position, and the practice of democracy should aim at the implementation of these principles in institutions and policies guided by the citizenry’s public reason. For Habermas, what is morally right is formed only by consensus in the practice of democracy. The difference between Rawls and Habermas reflects the difference between the ‘normative’ view that democracy should realize the ideal of the general will and the ‘functional’ view that democracy is a mechanism for arriving at consensus. But the difference here is not so large as it is between Rousseau and Schumpeter because the contrast between Rawls and Habermas is exhibited at the same level of participation and discourse. This might be an appropriate instance for examining the interrelaionship between the value and the reality of democracy. Thus we are led to find a way to the convergence of the norms and function of democracy with special reference to the concept of deliberative democracy.5

5.6

THE POSSIBILITY OF DELIBERATIVE DEMOCRACY

The Concept of Deliberative Democracy At the beginning of this chapter democracy is defined as the selfgovernance of a group based on the equal distribution of political power. Moreover, Figure 5.4 explains democracy as a process to realize the

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principles of justice endorsed by free and equal moral persons within actual institutions. These views presume the ideal of democracy to be derived from the values of freedom and equality, not in terms of its own values. The values of democracy should be sought in the process of reaching collective decision-making by coordinating and overcoming the value plurality that is inevitable when free and equal persons participate in the public sphere. Only by this effort can the values of freedom and equality be realized in a democracy. The spectrum of democratic theory includes the idealistic principles of democracy focused on self-governance, on the one hand, and the realistic functionalism of democracy to arrive at collective decisions by majority voting, on the other. Between the two poles, deliberative democracy calls for adjusting the conflict of plural values by discourse and dialogue. This is not a novel idea. In a 1929 lecture Alexander Lindsay, who is known to have found the source of democracy in British Puritanism, compared the principle of agreement and the principle of discourse. He found the essentials of democracy not in agreement as a method of reaching collective decisions but in discourse as a method of arriving at common thinking by reconciling differing opinion (Lindsay 1929). The editors of a contemporary anthology of deliberative democracy define it as follows: Broadly defined, deliberative democracy refers to the idea that legitimate lawmaking issues from the public deliberation of citizens. As a normative account of legitimacy, deliberative democracy evokes ideals of rational legislation, participatory politics, and civic self-governance. In short, it represents an ideal of political autonomy based on the practical reasoning of citizens. (Bohman and Rehg 1997, p. ix)

Theory of deliberative democracy is normative and has as its key words ‘public reason,’ ‘ideal deliberative procedure,’ and the like. In terms of Rawlsian usage, deliberative democracy does not emerge directly from the source of the principles of justice, such as a well-ordered society or the original position, but is constructed especially as a guideline for argumentation to resolve the issues of appropriate procedures for coordinating conflicts in values. Rawls mainly relies on the notion of constitutional democracy instead of deliberative democracy and compares ‘constitutional democracy’ with ‘procedural democracy.’ In the former, certain fundamental rights and liberties stipulated by the first principle of justice are imposed as constitutional limits on legislation in a democratic process. In the latter, by contrast, there are no such limits on legislation and whatever a majority enacts becomes law. Since constitutional democracy embodies the concept of

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justice, it has an educational role to inspire people to understand the meaning of justice. This is the problem of political sociology. According to Rawls, ‘A constitutive regime may be more likely to realize those principles and the ideals of free public reason and deliberative democracy [than procedural democracy]’ (Rawls 2001, p. 148). Rawls’s concept of constitutional democracy thus does not merely assert the ‘normative’ principle of democracy in opposition to the ‘functional’ approach, but aims to realize public reason and deliberative democracy through a process of political sociology; this is the reason why the notion of deliberative democracy is the possible ‘third way’ in democratic theory. Reciprocity, Recognition, and Fallibilism According to deliberative democracy, the legitimacy of public decisions with coercive power is found in rational discussion among free and equal citizens and in their commitment to the results of that debate. To give that process such legitimacy, an ‘ideal deliberative procedure’ is necessary. Joshua Cohen states that the ideal procedure satisfies four conditions (Cohen [1989] 1997a, pp. 74–5): (1) ‘free’ speech, (2) a ‘reasoned’ deliberation, (3) equal participation, and (4) an attempt to achieve ‘consensus.’ The notion of deliberative democracy institutionalizes these conditions. The crucial presupposition here is that although people have a variety of beliefs and ideals, they revise them through deliberation in the public sphere. Democracy is not a process of aggregating fixed preferences, but of changing them in pursuit of reasons that are persuasive to all. Here there is room for Schumpeterian leadership. As Rawls emphasizes in his account of public reason, this process is governed by the principles of reciprocity and recognition, which can be seen in conditions (1)–(4) above. Under value plurality, a person in the public sphere regards other persons as his equal and accepts their ideas as reasonable, even though he may not agree with them; however, he does not accept proposals based on self-interest or partisanship. The framework for argument must be acceptable to all participants in the deliberation. Deliberative democracy achieves autonomy in politics, or self-governance, through the revision of given informational bases (preferences, ideals, and beliefs) of individuals in intersubjective discussion. Rawls believes that citizens must conduct their discussions of public issues on the basis of public reason within the framework of a political conception of justice endorsed by others. When the public issues are solved based on reciprocity and recognition, public reason is achieved. The degree of public reason in a political process is crucial in appraising the quality of the public sphere in a democracy.

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To understand the meaning of ‘reciprocity,’ a comparison of certain perspectives will be helpful. Rawls called his theory of justice ‘justice as fairness,’ whereas Brian Barry commented that justice as fairness hovers uneasily between impartiality and mutual advantage. Allan Gibbard, on the other hand, remarked that it perches on reciprocity, lying between impartiality and mutual advantage, so Rawls’s theory is better named ‘justice as reciprocity.’ Rawls agreed with Gibbard’s interpretation (Rawls 1993, pp. 16–17). Returning to the concept of moral persons, the notion of reciprocity in political deliberation relates to both the rational and the reasonable, not just one of them. Presupposing value plurality, deliberative democracy accepts different values equally, but rejects irrational argumentation. In this sense, only ‘reasonable pluralism’ is allowed in deliberative democracy. Reciprocity’s twin is recognition, which in moral theory is equivalent to mutual respect. When autonomous persons with self-respect enjoy reciprocity through deliberation, they meet the requirement of mutual recognition. Deliberative democracy invests the results of consultation with legitimacy because it is based on normative conditions. Another concept to be added to the process of deliberative democracy is fallibilism, which John Stuart Mill (On Liberty) emphasized as a framework for freedom of opinion. Through discussion with others, man broadens his perspective, sees the world anew from different angles, and amends errors in judgment. The democratic deliberative process is a means not only to a consensus but also to progress in one’s moral and intellectual capacities. In the literature on deliberative democracy, it is pointed out that the normative conditions imposed on deliberation include not only appropriate procedure but also the substantive content of results (Gutmann and Thompson 1996; Cohen [1996] 1997b). This is important; it is in this sense that Rawls formulated a liberal political conception consisting of the principles of justice and guidelines for public reason, as mentioned with reference to Figure 5.4. Public Opinion and Knowledge in Deliberative Democracy Deliberation is not limited to argument by citizen representatives in forums such as legislature or parliaments. In fact, discussion of public issues in mass media like newspapers, television, journals, and lectures is more important. In this sense, it can be said that deliberative democracy is public decision-making through the formation of public opinion. As democracy is public decision-making by citizen participation, it might be assumed that citizens have good judgment and appropriate information. But since this is not the case, deliberative democracy must strengthen the ideal of

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democracy through education, enlightenment, and discussion via the mass media. To counter interest-driven politics and dominance by the bureaucracy, the mere ideal of self-governance is not enough. Between the ideal and the reality, a mechanism for the institutionalization of the ideal deliberative procedure is needed, and the mass media is such a vehicle. According to the Weber–Schumpeter thesis, however, the forum of public opinion is also a forum of political leadership involving agitation and propaganda. Walter Lippmann once pointed out the danger that not the real environment but the pseudo-environment made by our images of social reality will mislead us ([1922] 1997). The images or pictures of reality are given not only by politicians, but by public opinion embodying preconceptions and prejudices. Deliberative democracy must compete with agitating democracy, interest-driven democracy, and what might be called ‘stereotyped’ democracy. The political forum in the Greek polis was characterized in part by the flourishing rhetoric and demagogy of the so-called sophists. Plato criticized Athenian democracy because he thought that knowledge (episteme), not opinion (doxa), should govern the public sphere. His ideal state combined political power and philosophy, or was governed by a philosopher king. Since the modern ideal of democracy is the equal participation of all citizens in public decision-making, deliberative democracy must stress the broad knowledge they require. The importance of expert knowledge that influences public opinion in a deliberative democracy cannot be overemphasized. In the iron triangle of ‘politics, bureaucracy, and industry,’ bureaucracy is highly esteemed for its knowledge and qualifications as a designer of policy. But bureaucrats must be supported by academic experts. In the economic world, antitrust laws control unfair trade based on the market power of monopolistic and oligopolistic firms. In the political world, however, although a rigid scheme of collective decision-making such as the iron triangle prevails, there is no law to control the unfair use of political power. Public opinion must guard against the collusion of political powers, as well as support the solution of public issues with the help of scientific knowledge. Cultural Pluralism as the Outcome of Democracy Since culture is the product of institutions, what culture is expected from democracy? As emphasized here, the basic value premise and the starting point of democracy is the guarantee of value plurality rather than equal political participation and self-governance. It follows that democracy is a process to realize substantive values rather than procedural values. In fact,

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even Schumpeter’s theory of democracy as a method showed the essence of democracy as the achievement of excellence by leaders. As libertarians require democracy to realize the principles of liberty, so we require democracy to ensure the principles of justice and excellence for the sake of value plurality. Rawls’s normative thesis that the worth of liberty in political participation should be equal to all must be extended to the outcomes expected from the guarantee of value plurality. The discussion of the latter aspect relates to cultural pluralism, which is the twin of value pluralism at the starting point of democracy. Cultural pluralism or multiculturalism is mainly discussed as the theme of the politics of recognition for minority groups, but should be located in the general context of perfectionism.

NOTES 1. For a wide range of frameworks and themes explaining the public/private distinction, see Weintraub (1997). 2. Besides Sen’s sophisticated treatises, the following two articles (the presidential address of American Economic Association, and Novel Lecture) are overviews of social choice theory addressed to social scientists in general. Sen (1995) and Sen (1999a). Both are reprinted in Sen (2002). 3. For the concept of ‘plebiscitary leadership democracy,’ see Weber [1919] 1947, p. 103 and Weber [1922] 1968, pp. 268, 1126. For issues concerning that concept, see Mommsen (1974) and Beetham (1974). 4. David Held ([1987] 1996) distinguishes the following types: classical democracy, protective democracy, developmental democracy, direct democracy, competitive elitist democracy, plural democracy, legal democracy, autonomous democracy, and cosmopolitan democracy. In a survey article on democratic theory, Amy Gutmann (1993) uses the following classifications: Schumpeterian democracy, populist democracy, liberal democracy, participatory democracy, social democracy, and deliberative democracy. 5. Literature on deliberative democracy is growing. See Fishkin (1991), Bohman (1996), Gutmann and Thompson (1996), Benhabib (1996), Nino (1996), Bohman and Rehg (1997), Elster (1998), Koh and Slye (1999), Dryzek (2000), Fishkin and Laslett (2003), and Goodin (2003).

6. 6.1

The ethics of social security THE MORAL BASIS OF SOCIAL SECURITY

Framing the Issues Chapters 4, 5, and 6 are devoted to the moral basis of three institutions, namely capitalism, democracy, and social security respectively. These institutions represent the basic structure of contemporary developed countries in terms of the economy, politics, and society. This chapter focuses on social security, not in isolation but in combination with all institutions. For a social security system essentially depends on a capitalist economic system and a democratic political system; the three systems – capitalism, democracy, and social security – constitute the welfare state. Historically, as T.H. Marshall argued, the welfare state has advanced through three stages of citizenship (Marshall [1950] 1964). Schematically speaking, ‘civil rights’ for individual freedom developed in the eighteenth century; ‘political rights’ to participate in public decision-making, in the nineteenth century; and ‘social rights’ for economic welfare and security, in the twentieth century. These developments occurred amid political strife among the various social classes. In Europe, the civil society that had replaced the absolute monarchy established economic freedom through the growing framework of markets, but it soon became an unequal society dominated by the bourgeoisie. Intellectuals, workers, and the masses tried to check the trend by a series of civil wars and revolutions and the subsequent achievement of suffrage. Finally, the introduction of social security with the lever of political freedom has made poverty a public issue and further modified the principles of economic freedom. Thus, two institutional constraints of democracy and social security have been imposed on the modus operandi of capitalism; we now have what Marshall termed ‘Democratic–Welfare–Capitalism’ (Marshall [1972] 1981). In this book we call this three-layered system ‘capitalism, democracy, and social security,’ the total of which comprises the welfare state. Those countries that have not followed the three-stage development can accept the three elements as a set and introduce part or all of them in a different order. These historical developments represent in a comprehensive way the evolution of ideas embodied in the ‘institutions’ linking the ‘private sphere’ 213

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and the ‘public sphere’ in terms of Figures 5.2 and 5.3 in the preceding chapter. By the establishment of these rights, which enabled the expansion of substantive freedom and equality in various aspects of life, the wellbeing of people has increased. Of course, this process has not been concluded even in the developed countries, but what Marshall wanted to say is that, referring to Rawls, provided the conditions of the tripartite rights are secured, the economic and social difference among people is justified and people acquire free and equal status as full members of a community, that is, citizenship. In the process of modern economic growth since the mid-eighteenth century, economic development, from the viewpoint of economics, has produced a sustained rise in per capita income. But income is only one way to secure the well-being of people. Rather, economic development is a process of accommodating freedom in various fields of life and of expanding the opportunities of human activity; therefore, the expansion of economic, political, and social freedom is not only the objective of economic development but also a way to promote it (Sen 1999c). Expansion of freedom and economic development are not simply reciprocal. The establishment of various rights, together with industrial development in markets, has made the improvement of well-being possible by controlling the consequences of industrialization. Outcomes of the market alone are not responsible for that well-being. To follow Karl Polanyi, a market is embedded in society, and human society defended itself against a self-regulating market by the institutionalization of rights (Polanyi [1944] 1957). Nevertheless, the historical accumulation of various concepts of rights does not necessarily ensure the mutual consistency of the values embodied in them, because the combination of the three elements of citizenship is not a theoretical construction but a historical contingency. The unending debate on the balance between liberty, equality, and welfare in the face of life’s challenges is evidence of the theoretical weakness of the conception of the welfare state. It is because Marshall wanted to emphasize the unstable combination of the three elements in ‘Democratic-WelfareCapitalism’ that he called the system a ‘hyphenated society.’ It is the fundamental task of the welfare state to coordinate ‘civil rights,’ ‘political rights,’ and ‘social rights.’ This does not mean that one should draw a unitary picture of the welfare state. What is needed is a consistent value system by which reality can be analyzed. In fact, there are different types of welfare states that reflect not only differences in the historical, cultural, and social background of countries, but also differences of values, positive or negative, adopted with regard to the management of the welfare state. Christopher Pierson’s approach resembles mine in that he focuses on the nature of the relationship between capitalism, social democracy, and the

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welfare state (Pierson [1991] 1998). But I define the welfare state as the complex of capitalism, democracy, and social security; furthermore, I do not confine democracy to social democracy. Contemporary issues dealing with the welfare state are not limited to the level of theoretical reflection. Today grave questions are raised on the sustainability of the welfare state, which represents a practical challenge to developed countries. On the one hand, it is hard to meet the ever-growing demand for social services because of the maturity and stagnation of the economy, the ageing and declining population, and changes in social structure including the family. On the other hand, especially after the fall of the communist regime, political ideology has shifted from one of government intervention to a market economy, and the welfare state is under ideological attack. The working population – the supplier of funds for social services – is opposed to raising the burden of insurance premiums, taxes, and co-payments. With the globalization of the economy, there is strong opinion that growing social expenditures hinder economic growth, that public management of social services involves inefficient resource allocation, and that generous social services are a moral hazard and cause a decline in the work ethic. Whereas capitalism and democracy are applauded, where does the welfare state stand? Reform of the welfare state should be considered not only as a financial problem but also as a philosophical problem, one that requires coordination with capitalism and democracy as the foundation of the social security system. As it provides an overview of contemporary debates on the welfare state, this chapter attempts to define the ethics of social security.1 What is Social Security? Social security is an institutional device that corrects and supplements the process of a market economic system to create a sustainable society as a fair system of cooperation. In the context of citizenship, referred to in the above, the purpose of social security is to ensure that all people are full members of their community by publicly providing the resources needed to achieve ‘social rights’ on the basis of ‘civil rights’ and ‘political rights.’ The kind and scope of resources offered by social security vary by country, but usually includes social services (in kind or in cash) such as pensions, health care, care for the elderly, welfare, education, housing and the like. Social security begins with ‘basic human needs,’ which are to be satisfied by these services. Basic human needs are those elements that human beings require to function. Social security has two objectives. First, it provides a public ‘safety net’ to cope with risk when individuals cannot satisfy their own basic needs.

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Second, it further creates a ‘springboard’ to ensure those individuals economic and social opportunities to achieve autonomy, to develop their capacities, and to help them realize self-fulfillment through the satisfaction of their basic needs. The former is a negative welfare policy; the latter is a positive welfare policy.2 It is customary to call social security a safety net, but that term is likely to convey the idea that social security is undesirable and requires only minimum measures. To avoid misunderstanding and to emphasize the positive and ex ante aspects of social security, the analogy is given that social security is a springboard or trampoline. The primary task of the ethics of social security is to elucidate the nature and basis of the vague notion of ‘social rights’ in light of the two objectives of social security, namely ‘measures against risk’ and ‘opportunities for self-realization.’ Yet there are two practical constraints. First, social security does not provide comprehensive benefits over a whole range of life. It only ensures the right to ‘basic needs.’ It has no fixed minimum, but insofar as it presupposes a market economy, the provision of social services must be limited. In this sense, it is accurate to say that social security ensures people the civil minimum. This limitation is derived from the macroeconomic feasibility of social security and the microeconomic and social incentives and ethical responsibility of individuals. The analogy of a safety net is reminiscent of the protective mechanism for circus performances, which suggests a public good for use in an emergency. But this idea is unrealistic for social security, which is not a public good. A.B. Atkinson ingeniously suggests a better analogy – that of a lifeboat, which has a limited capacity (Atkinson 1995, p. 276). But the limits of social security do not signify its negativeness. The term ‘safety net’ is likely to overlook the positive functions of social security, illustrated by the analogy of a springboard. Second, just because of its limited scope within the economic and social system as a whole, social security must closely cooperate with other institutional schemes. I have argued that social security must cooperate with the two big systems of capitalism and democracy. To ensure that social security is a positive welfare policy, it must be treated not as an isolated system for the socially weak, but as one of the chains in the policy network directed to a desirable society in cooperation with other economic, social, and cultural policies. Specifically, as the premise of social security, we need a policy for competition, an employment policy, and a fiscal policy; also required are related social policies on the family, housing, and education. Finally, we need various policies for cultural values to promote positive lifestyles for the individuals whom social security protects. To regard social security as a positive cooperative network within national policy as a whole has important implications for reform of the social security system.

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The Starting Point and Objectives of Social Security The above discussion encompasses the notions of ‘basic needs,’ ‘measures against risk,’ and ‘opportunities for self-realization.’ These notions constitute the core of the conception of social security and explain its starting point and objectives in a systematic way. Economics starts with the concept of the want of goods and services and considers the major challenge of an economic system as the allocation of resources to satisfy the wants of individuals. Wants represent subjective preferences and differ among people. By contrast, needs refer to objective and universalizable objects. In the sense that not to satisfy needs is seen as a serious harm to the objective interests of the individual, it is argued that needs have objectivity and universalizability (Doyal and Gough 1991, pp. 39–45). The theory of primary goods, which underlies Rawls’s principles of justice, can be interpreted as a theory of citizens’ needs (Rawls 1993, pp. 187–90). Although Rawls is mainly concerned with social primary goods, there are also natural primary goods, such as health and vigor, intelligence and imagination (Rawls 1999a, p. 54). This coincides with Sen’s concept of capability. The concept of needs includes both social and natural primary goods. Rawls’s concept of primary goods is an all-purpose means that helps people to possess the two moral powers of good and justice; primary goods are so comprehensive and so abstract that they cover civil, political, and social rights. In contrast, the concept of basic needs, often used in the literature of the welfare state and social policy, refers to concrete items. For instance, food, clothing, and shelter are essential to human existence; health care and elderly care are essential to those suffering disease or disability. But the concept of needs must go beyond the concepts of wants for specific goods and services and start from an understanding of the existence of the human beings behind those wants. Such an understanding may be that ‘physical health and autonomy’ are the basic needs; health and autonomy are the goals of the normal maintenance of physical, mental, and aesthetic capacities, and these goals are essentially the preconditions for human action and interaction (Doyal and Gough 1991, pp. 49–75).3 Social security is the public scheme for the allocation of economic resources to meet basic needs. The concept of basic needs is based on an understanding and consensus about the basic conditions of human ‘existence’; therefore, a social security system, starting from the concept of basic needs, must have an in-depth ethics of ‘existence.’ As argued in Chapter 1, the ethics of existence is the ethics of virtue and excellence, and perfectionism, as formulated in Chapter 3, section 3.6, must be introduced into the concept of social security. Perfectionism holds that well-being consists

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in the development of properties central to human nature and in the achievement and creation of social practice, and that individual autonomy, human excellence and flourishing, and self-realization are accomplished by the pursuit of objectives. The value premise of Rawls’s theory of ‘institutions’ is Kantian moral persons as ‘existence.’ Perfectionism asserts the development of human existence in the social context as virtue; it interprets the basic conditions for human flourishing in terms of basic needs. Therefore, social security concerning the satisfaction of basic needs not only aims to provide a defense against the risk of suffering due to the lack of basic needs, but also to promote the pursuit of excellence based on the fulfillment of basic needs. We call these two objectives the negative objective (measures against risk) and the positive objective (opportunities for self-realization) of social security respectively. The Moral Basis of Social Security (1) – Excellence and Justice In pursuing the objectives defined above, why is social security dependent on public scheme for the provision of specific social services? Normally, because of their technical nature, the services provided by social security are private goods, not public goods. Those private goods that are produced or financed exceptionally by the government are called ‘merit goods.’ Social security is a merit good. Why is social security a merit good? This question relates to the moral basis of social security. As social security starts with the satisfaction of basic needs, the first moral basis of social security is the ideal of ‘excellence’ concerning human ‘existence.’ Basic needs should be understood not as the minimum conditions of biological subsistence but those of human excellence, improvement, and self-realization. The ideal of excellence, supported by the satisfaction of basic needs, demands a life of human flourishing through the development of capacities in the context of social practice. It is the primary virtue of social security. If so, reexamination and reorientation of the basic needs concept is required from the viewpoint of the excellence of human ‘existence.’ Ordinarily, the specific categories of social security include a narrow group – pensions, health care, and welfare – but should at least cover the related social policy for employment, education, and housing from the viewpoint of coordinated policies. Although traditionally only the safety net function of social security is emphasized as a ‘measure against risk,’ that function should be designed not to cause the culture of dependency but to ensure the creation of ‘opportunities for self-realization.’ I hold that the primary function of social security is to act as a springboard for ‘opportunities for self-realization’ in the social context and that its primary moral

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basis is the ethics of ‘excellence.’ With this priority in mind, let us proceed to the traditional notion of social security, namely a safety net as a ‘measure against risk.’ In ordinary life, people depend on income from their own labor in the market or the assistance of their family. If they are confronted with poverty, unemployment, disease, disability, or old age, and if they cannot depend on either the market or their family, they cannot satisfy even the basic needs for survival. Guilt gnaws at the heart of many men and women who live a comfortable, happy life, while others endure miserable conditions, a fact that cannot be overlooked from the moral point of view because anyone can experience hardship. There has never been a community that did not try to take care of its poor by private charity or communal provision. The modern welfare state copes with this problem through social security. A moral philosophy must provide theoretical formulation of this scheme. As we have seen in Chapter 2, the theory of justice based on the social contract explains the rationale for public provision of basic needs through a system of redistribution. This system is not what Rawls called ‘welfarestate capitalism’ but what he called ‘property-owning democracy,’ as discussed in Chapter 2, section 2.5; it is based on the three-layered principles of justice, namely equal basic liberties, fair equality of opportunities, and the difference principle. ‘Justice’ is the second moral basis of social security. As the structure of Rawls’s theory suggests, the conception of ‘justice,’ which should regulate ‘institutions,’ is different from the conception of ‘excellence,’ which is concerned with human ‘existence,’ but is based on a conception of human existence. Whereas justice is an interpersonal matter of equality and inequality among individuals, excellence is an absolute notion about the situation of individuals. Even a narrow view of social policy regards the lessening of poverty, not of inequality, as necessary (Feldstein 1999). Poverty involves the lack of human dignity; it is the opposite of excellence. Insofar as excellence is the primary rationale of social security, it precedes justice. The idea of excellence concerning human existence is almost equivalent to the view of the right to live as the foundation of social security, because the notion of the right to live concerns the survival of human existence as such without taking into account distributional equality and inequality. But my view does not merely refer to the human right to dignity but invokes the ethics of existence, which amounts to one-third of the total system of ethics, as the primary moral foundation of social security. An inquiry into the moral value of ‘existence’ underlying the right to live is required. There is a notion of normalization in the field of social welfare (Wolfensberger 1972). This notion claims that measures for the physically or mentally handicapped should provide them with normal conditions,

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environments, and lifestyles similar to those of ordinary people. Since this idea was raised in the context of criticism of the separation and discrimination of the handicapped, its emphasis was placed on the normalization of external circumstances such as housing, education, labour, and leisure. Indeed, the provision of ordinary external circumstances is important to the dignity of the disabled. However, for normalization to be understood in the vital field of social work, there must be a clear understanding that what the disabled really want is not the normalization of mere external conditions but the normalization of capacities. However difficult it may be, the normalization of human capacities in social work is consistent with the objective of social security generally to redress the lack or shortage of basic needs, and its moral basis should be the ethics of ‘excellence’ for human ‘existence.’ The Moral Basis of Social Security (2) – Efficiency To explain another moral basis of social security, we must clarify the institutional device of insurance for the collective management of risk. Even if basic needs are likely to be unmet, the device of insurance as a ‘measure against risk’ is available in the market. It was originally a private good and sold as private insurance. Insurance mitigates the influence of uncertainty through cooperation among the participants. Suppose that many individuals facing a similar risk form a group and each pays a fixed small premium P to avoid the probability  of incurring a large loss Z. Those insured persons who actually suffer from the loss will receive that amount from the pool of contributions. In the case of private insurance, the premium must be equal to the actuarial value of the loss: P  Z. (To be precise, the management cost and profit of an insurance company must be added to the right side of the equation.) Thus, when risks are pooled, the costs of loss due to the actual risks are dispersed from the person suffering the loss to the group as a whole, and the actual claimant receives the amount of the loss as a transfer from the contributions of the nonclaimants. The dispersion of risk and the transfer of income take place at the same time. If it is possible to effectively cope with risk in this way, people can insure against the absence of basic needs. But there is asymmetry between policyholders and suppliers of insurance. From the viewpoint of efficiency, an individual with a high risk must pay a high premium to obtain insurance against that risk and those with a low risk must pay a low premium; the supplier of insurance wants to set different premiums in accordance with specific degrees of risk for particular policyholders. But policyholders often try to conceal the degree of their risk. This is called a market of lemons, namely goods of bad quality (Akerlof 1970).

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It is generally supposed that private insurance is based on a risk-adjusted premium, but this is not always true. Insurers must charge a communityrated (that is, the same) premium, based on the average loss probability, to all enrollees who choose the same plan. In the case of health insurance, for instance, healthy people find such a plan disadvantageous, whereas unhealthy people who know they have a higher risk of disease are more attracted to it. This phenomenon is termed adverse selection. Before a contract is signed, the individuals applying for insurance have more information about their own health than the insurers. As a result, the total expenditure of the insurer will exceed the total revenue from premiums, and the insurer will have to raise the average premium and markets ultimately will cease to exist. This market failure has occurred due to the asymmetry of information. Given the conditions of adverse selection, mandatory social insurance of the government also applies an average rate premium independent of individual risk probability to accommodate the total expenditure of the insurer. The market failure of insurance markets provides a reason for mandatory social insurance. Improvement of ‘efficiency’ by preventing market failure is the third reason for a social security system.4 The private insurer can discriminate between the degrees of risk of applicants and between applicants. People with a low income cannot afford insurance, and in the case of health insurance, people with a history of serious diseases will be excluded from a plan. This phenomenon is called cream-skimming; the top, healthy tier of a social group is accepted for insurance. Since it is certain that the sick will suffer from disease, it is impossible to pool the risk probability. Therefore, there is a strong argument against leaving the demand and supply of insurance to markets, again from the viewpoint of ‘justice.’ The mandatory insurance provided by social security can protect against a wide range of risks and uncertainties that cannot be covered by private insurance. Insurance plans, whether private or social, pool the risk of members and pay claims from the pooled premiums. Social security applies this principle to all people through the coercive power of the government; the nature of the contributions people must pay to the community pool is not different between insurance premiums and taxes.5 The justification of the government interference – that is, efficiency in the context of imperfect information – is not limited to adverse selection in insurance. With uncertainty, as distinguished from risk, actuarial calculation is impossible; uncertainty applies to conditions of overall inflation, unemployment, and natural disasters, which private insurance does not cover and for which the government is responsible. Furthermore, for markets to work efficiently, information not only must exist but also must

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be understood and utilized effectively by consumers. To reduce the enormous cost to the consumer in dealing with information on the quality of complex goods and services, government regulation of consumer protection is justified. Health care services in kind are included in social security because efficiency issues due to imperfect information and asymmetry are prominent in medical care. From the standpoint of basic needs, food is essential, but insofar as information cost for food is not so expensive, it is not provided by the government. To summarize, the moral basis of social security as a nonmarket system is excellence, justice, and efficiency in that order. Social security aims primarily to satisfy ‘basic human needs’ by taking ‘measures against risk’ and securing ‘opportunities for self-realization.’ The difference between my argument and conventional thought is that in my view excellence takes precedence over justice and efficiency as the moral basis of social security. Hence I emphasize not only the negative function of providing a social safety net, but also the positive function of offering a springboard for self-realization. As a result, social security can also relieve poverty, reduce inequality, redistribute income and expenditures over the life cycle, supplement family functions, strengthen social solidarity, increase social stability, establish individual autonomy and self-respect, and so on. These may be different expressions of the above-mentioned objectives of social security. In contrast, some argue that social security promotes the desirable goal of increasing effective demand, employment, and production, but these phenomena are natural economic effects of the provision of social security and not its purpose. If it is true that any dollar expenditure has a positive economic effects, it is meaningless to inquire into the desirable methods of resource allocation. There is also a rationale for comparing the relative merits of social security and public investment in terms of the multiplier effect of both expenditures, but this approach is fallacious because social security is provided for the purposes described above. If social security and public investment are to be compared at all, one should compare their main objectives, not their secondary effects. Inherent Paradoxes of Social Security – Ability versus Need, Moral Hazards versus Moral Dilemmas The Beveridge Report of 1942, that definitive contribution to the history of social security, declared that social security would combat five giant evils: Want, Disease, Ignorance, Squalor, and Idleness (Beveridge 1942). The British system of social security was designed to cover five areas: pensions, health, education, housing, and employment. Gargantua and Pantagruel,

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written by the sixteenth-century French author François Rabelais, is a satirical novel of fantasy featuring two giants. Perhaps reminiscent of this novel, a British newspaper at the time of the Beveridge Report’s appearance published a cartoon of William Beveridge fighting five giants of towering height (Timmins 1995, p. 12). Indeed, Beveridge’s idea was a gargantuan project comparable to battles against giants, but, ironically, this analogy has become a reality in a different sense. In the novel, Gargantua and his son Pantagruel were such big eaters and heavy drinkers that the people around them were starving. Similarly, social security has grown up to be a serpent that gobbles up huge sums of money. Furthermore, today a sixth giant – the Elderly – has appeared on the scene. The reasons for the imbalance between expenditures and revenues of social security are easily identified. Karl Marx called for a communist society based on the principle: ‘From each according to his ability, to each according to his needs’ (Marx [1875] 2000, p. 615). That is, at the most advanced stage of communism, productivity would achieve its zenith, flooding society with income and material wealth as water springs from a fountain. People could consume as much as they needed yet never experience a shortage. Scarcity would thus disappear from the economy, making all goods free goods. It would be unnecessary to debate distributive justice or to allot the citizenry physical capital that only produced nonscarce goods. This is the natural reason for the abolition of the private property. Obviously, it is not an accurate picture of communism. In any society, capitalist or communist, such a principle of utopia or fairyland does not hold. Yet social security tries to apply this principle in its provision of social services, though to a limited extent. In fact, all welfare states face the situation in which for society as a whole the benefits according to need are likely to exceed the burdens according to ability. The reason for this crisis is that although ‘needs’ are insatiable and tend to absorb a large amount of scarce resources, the social security system crucially lacks an automatic mechanism to coordinate needs and the ability to satisfy those needs. There is another reason for the crisis at the microeconomic and social levels. When a private good is provided as a merit good under the social security system, its benefits and costs are separated; those who get the benefits do not have to pay the costs; the costs are shared by all according to ability. In practice, the recipients of benefits pay premiums and co-payments that are smaller than the total costs corresponding to their benefits. This creates the phenomena called moral hazards. In the case of private or public insurance, the insured do not behave as is expected under the given budget restrictions; they naturally demand more goods and services because they are cheaper. As a result, insurance payments will increase, as is typically seen in the pay-as-you-go system of medical insurance. People normally manage

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their own work life, savings, and health, but with social security they tend to lose the incentive to be prudent. The propensity to reduce the risk probability may be lost under social security. Moral hazards mean a loss to the insurers when they are unable to monitor the actions of the insured. Moral hazards and adverse selection together constitute the problem of asymmetrical information (Kreps 1990, chs 16 and 17). Therefore, the social security system causes not only a macroeconomic imbalance between needs and the ability to satisfy them with regard to the social management of risk, but also the microeconomic and social transformation of individual behavior and incentives leading to the acceleration of the macroeconomic imbalance. These effects are due to the incentive incompatibility inherent in social security, a paradox that social security reform should take seriously from the viewpoint of efficiency. An even more fundamental paradox of social security is found in the moral dimension called Hegel’s dilemma (Moon 1988). G.W.F. Hegel asked whether the economic relief supplied by the government in the midst of abundance and the poverty caused by a market economy is consistent with the principles of freedom, self-help, and self-responsibility underlying civil society. Even if a macroeconomic balance between basic needs and the ability to meet those needs were attained, would not the assistance of strangers provoke the moral resistance and injure the self-respect of those unable to provide for themselves? This – what might be called moral dilemma – makes an interesting contrast with moral hazards. Whereas moral hazards mean that people get a free ride through social security and make full use of it, the moral dilemma indicates that social security is degrading to recipients. In contrast to Hegel’s age, is it true today that moral hazards are common for most people who do not feel a moral dilemma? In appraising social security, it is necessary to consider not only economic and financial issues but also moral dilemma issues because individuals’ consciousness and behavior constitute an element of the economic world. Thus the economy and morality are connected. The core of these issues is this: on the one hand, if society as a whole accepts the principle that markets are supreme, social security recipients are stigmatized and regarded with contempt by nonrecipients; here is the moral dilemma. On the other hand, if the principle of social rights is taken for granted, social security is universal and many beneficiaries are likely to have a free ride, causing moral hazards. If either principle is exclusively approved, the corresponding immoral phenomenon will remain. The solution, I would argue, is to integrate the two principles and to incorporate the notions of market ‘reciprocity’ and moral ‘duty’ into the universal exercise of social rights. In ordinary language, the benefits and costs, or rights and duties, should be integrated into the scheme of social security as paired notions.

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It is the task of the ethics of excellence to coordinate the market principle and the principle of social rights, people’s needs and the ability to satisfy them, or efficiency and justice, in order to solve the inherent paradoxes of social security. My ethics of excellence views social security as starting with basic needs and attempting to achieve the positive goal of creating opportunities for self-realization; it advocates a positive welfare policy to enhance the capacities of human beings. (Policy issues will be discussed in Chapter 7, section 7.6 below.) The gist of this argument appears in Figure 6.1. Social Security as the Mediator between Capitalism and Democracy – a Hypothesis The modern welfare state, in contrast with the institutions of communism or socialism, which control the entire economy based on the nationalization of productive means, tries to achieve justice similar to that of communism or socialism through limited social services grounded in capitalism and democracy. The problem of coordinating ‘capitalism, democracy, and social security,’ or ‘civil rights, political rights, and social rights,’ resembles the task of Schumpeter’s book Capitalism, Socialism and Democracy. Schumpeter assumed a transition from capitalism to socialism because of the internal changes in capitalism; in referring to socialism, he had in mind the welfare state beyond the development stages of capitalism, not the former Soviet Union or China. He advanced the thesis of ‘the Cultural Indeterminateness of Socialism,’ meaning that socialism could permit diversity in the political, social, religious, and spiritual aspects of society. This thesis is significant for two reasons. First, Schumpeter believed that the economy was not the only or even the most important aspect of socialism. ‘We will keep in mind that socialism aims at a higher goal than full bellies, exactly as Christianity means more than the somewhat hedonistic values of heaven and hell. First and foremost, socialism means a new cultural world’ (Schumpeter [1942] 1950, pp. 169–70). This idea basically parallels my image of what exists beyond the economy; I call it ‘culture’ or ‘cultural value.’ Whereas Schumpeter foresaw a ‘new cultural world’ in the socialist arrangement beyond capitalism, I view it within the framework of the welfare state equipped with an ethical foundation. Second, although Schumpeter argued that the tendency toward rationalization, individuation, and democratization emerged from capitalism, and that it would make socialism feasible, he did not make clear what would occur in a socialist society. But because he thought that ‘socialism is a cultural Proteus’ (ibid., p. 171), he did not specify the unique cultural and

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Figure 6.1

Efficiency

Moral hazards versus moral dilemmas

Benefits according to needs versus costs according to ability

Justice

*Public reason *Dynamic goals *Dynamic means

Coordination by positive social security

Excellence

To support the exertion of capacity = opportunities for self-realization (springboard)

Demand of human existence = basic human needs

To supplement the lack of capacity = measures against risk (safety net)

The moral structure of social security

Inherent paradoxes

Moral basis

Objectives

Starting point

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spiritual traits of socialism extending from its wide range of diversities and possibilities. Instead, I believe that we should regard the diversities and possibilities in cultural pattern as the unique trait of a social system not yoked to the economic mechanism. This is the value of pluralism. If we replace Schumpeter’s concept of socialism with the welfare state and reinterpret his thesis in the ways just mentioned, we can anticipate the place and role of social security in coordinating the welfare state; in other words, we can expect as a hypothesis that social security is the mediator between capitalism and democracy. Actual socialist systems established in developing countries that reject capitalism are nonmarket systems based on the nationalization of capital and the planning of an economy; politically, they are incompatible with democracy and thus have become totalitarian regimes. In accordance with the historical fact that capitalism and democracy won the conflict between East and West, the contemporary issues involved in coordinating ‘capitalism, democracy, and social security’ are reduced to the question of how a social security system, having shared the ideal of social justice with socialism, can coexist with capitalism and democracy. Among the tripartite components of the welfare state – capitalism, democracy, and social security – social security is the latest comer and depends on the existing systems of economic capitalism and political democracy. However, the means of dependence is different. Although social security aims to modify the process and outcome of the market mechanism, it depends on a market system for its funding. For policy decisions and implementation, social security must depend on a political process. The social security scheme is a device for collecting and redistributing funds; it lacks a self-reproducing capability, which is a unique characteristic of the market system. Because of its parasitic nature, social security is liable to be restricted by economic affairs. How can social security and the welfare state control the economy while parasitically relying on the economy? On the other hand, although the welfare state depends on a political process, it is imperative from a moral point of view that a democratic political system be based on justice, and that people engaged in public decisionmaking should have public reason. But formally speaking, since democracy is merely a political process or device for arriving at a collective decision, an actual democracy may be either hostile or friendly to capitalism and social security depending on the ideology of the dominant political power. As discussed in Chapter 5, section 5.6, the notion of deliberative democracy is a way to bring the form close to the substance of democracy or its function to the norm. Is it possible for deliberative democracy to take root in the political process through the practical issues of social security?

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As argued in Chapter 5, section 5.2, capitalism and democracy have a the relationship of ‘union and disunion’ and are interconnected through the bilateral penetration of influence. In light of the contrast between economic inequality in capitalism and political equality in democracy, social security is the result of a compromise between the two; it can be regarded as a buffer between economic inequality and political equality with the help of justice as a cushion. Furthermore, the notions that excellence and efficiency are the foundations of social security provide people with more reliable incentives than the notion that justice appears to enforce altruism and is the sole basis of social security. Thus to reform the welfare state we must determine how the relationship between capitalism and democracy is to be reconstructed by the ethics of social security. With this working hypothesis in mind, I prefer to approach the interface between the economy, morality, and politics focusing on the welfare state. The hypothesis of the place and role of social security has normative as well as descriptive meaning for interpreting the reality. The so-called power resources theory, which explains the growth of the welfare state, argues that social-democratic political power motivated by the labor movement has established the welfare state as the distributive machinery through a conflict with capitalist markets (O’Connor and Olsen 1998). But I believe that the relationship between capitalism and democracy, both of which are major power resources, is more diversified. Moreover, insofar as the welfare state already exists, it can work to adjust the relationship between the two power resources normatively and realistically.

6.2

THE INTERRELATIONSHIP BETWEEN VALUES AND INSTITUTIONS

Why Do We Question the Moral Basis of the Welfare State? Generally, those who discuss social security pay little attention to the structure of values that should justify it and barely refer to the terms of social solidarity or the right to live.6 At an ideological level, right-wing conservatives have denounced the welfare state as a grave threat to a free society, and left-wing socialists have condemned it as a useless struggle of capitalism to survive without principle. Both groups believe that the welfare state has no moral basis; for them, it is only an object of either hatred or skepticism and not accepted as a new system of society. On the other hand, defenders of the welfare state have taken advantage of the fact that it does exist, contenting themselves with the exposition of existing schemes; they have never attempted to construct moral principles

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to explain and support social security and the welfare state. For the principles of the welfare state, we must look to the work of moral philosophers. Arthur Cecil Pigou, the founder of modern welfare economics, once remarked, referring to Alfred Marshall, that economics is ‘a handmaid of ethics’ as well as ‘a servant of practice’ (Pigou 1925, p. 84). Pigou meant that economics must be concerned with both values and institutions. Since most economists are absorbed in the techniques of efficient resource allocation to maximize the concept of the good, they unvaryingly deal with the design of institutions in light of efficiency. But when they are concerned with the broader task of coordinating a plurality of values, they must become familiar with the structure of values consisting of right (justice), virtue (excellence), and good (efficiency). Economists who work on the reform of government budgets and social security using makeshift measures can be ‘a servant of practice’ for bureaucrats and politicians, but not ‘a handmaid of ethics.’ There is a wide gap between practice and ethics. If Pigou was right, economists are asked to bridge the gap between politicians and philosophers. This work of bridging requires certain methodological reflections on the interrelationship between values and institutions. Schools and Regimes In Part I of this volume we examined how the four major schools of contemporary moral philosophy (utilitarianism, contractarianism, libertarianism, and communitarianism) interpret the values of liberty, efficiency, justice, excellence, good, right, and virtue. This chapter tries to make clear, as a result of this examination, how each school of moral philosophy applies its general thought to evaluating the institutions of social security. We understand the institutions of social security as one component of the three-layered system of the welfare state. It is anticipated that each school of thought is based on a different interpretation of the major values and proposes a different paradigm of desirable institutions. Each school must be able to satisfy the format (a matrix of three values and three institutions) shown in Table 0.1 in the Introduction. In our definition, however, the welfare state consists of economic, political, and social branches, so that abstract moral philosophy does not necessarily have a clear perception of the welfare state as a whole. For moral philosophy to comment on institutions, it must be extended to economic, political, and social philosophy. Therefore, the reflections below on the relationship between values and institutions must involve an interpretation to some extent. This represents a theoretical approach to institutions from values.

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In contrast, there is an inductive approach to values from institutions. The typology of the welfare state distinguishes three types of regimes as the dominant paradigms. Gøsta Esping-Andersen has proposed a liberal welfare regime, a social-democratic welfare regime, and a conservative or corporatist welfare regime (Esping-Andersen 1990; 1999). Typically, the first type applies to the US, the second to Sweden, and the third to Germany. This approach characterizes the economic, political, and social traits of countries in terms of empirical indexes and generalizes several types. As the naming of types indicates, a reference to values is inevitable. It is desirable to link the typology to the system of values. Just as different schools of thought comprise the format in Table 0.1, so different regimes of the welfare state are expected to present different formats. Consequently, we have a three-dimensional diagram concerning values and institutions in Figure 0.1. The abstract relationship between values and institutions at the plane with axes X–Z is mediated by two kinds of reality on the axis Y: one is schools as the types of thought; the other is regimes as the types of institutions. The Family as a Sociological Concept To analyze the practical relationship between values and institutions in the context of the regime typology, we need a sociological perspective. The family (and local community), the typical sociological concept, is neglected in economic theory and political and moral philosophy, in which the abstract individual is regarded as the unit of investigation. Economic theory takes as its object of study individuals working in capitalistic markets. Political philosophy is concerned with individuals participating in the political process of a democracy. Moral philosophy abstracts from all institutional reality and deals with individuals in society. Feminism starting from family relations revolts against traditional economic theory and political and moral philosophy to the neglect of family. Even within these frames of thought, it is possible to lay the foundations of a social security system. But in the institutional analysis rather that the theoretical analysis of social security, the family unit as a group of individuals is indispensable. In this book social security has been defined as a public scheme in which the state pools the risk of individuals in life and offers them social protection and support. The public scheme of social security is contrasted with self-help through individuals’ participation in the market. Thus the trinity of ‘individuals, market, and the state’ comprises social institutions including social security, from the perspective of economic theory. Political philosophy and moral philosophy basically agree with this perspective.

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In contrast, from the sociological perspective, the trinity of ‘individuals, family, and the state’ provides another way to explain the structure of the welfare state. Throughout history, it has been primarily family (parents and children, brothers and sisters, husband and wife, relatives) and secondarily local communities and vocational associations that support the well-being of individuals and protect them against the risk of poverty and disability. It has been also in various kinds of communities and associations as the place of social practice, rather than in the marketplace, where individuals have exercised their capacities. Therefore, we can conceive a self-help model based on family and community in addition to the self-help model based on markets. We refer to the relationship between individuals and markets as the Gesellschaft and to that between individuals and their community as the Gemeinschaft. The provision of social security by the state consists in the delegation of part of the responsibility to support and protect individuals from the market and family. To put it differently, social security departs from the market and family as a source of well-being in two ways. Hegel characterized the relationships between family, vocational association, market, and the state with respect to welfare policy as measures for poverty and inequality. This means that, exceptionally as a philosopher, Hegel took into account both trinities: ‘individuals, market, and the state’ and ‘individuals, family, and the state’ (Hegel [1821] 1967, pp. 146–55).7 Present-day communitarianism, in opposition to mainstream moral philosophy, has a similar sociological perspective emphasizing family and community. The above explanation of the dimensions of ‘schools’ and ‘regimes’ will enable us to define more accurately the interrelationship between values and institutions as they relate to social security. The rest of this chapter will examine the value–institution relationship of the two dimensions (section 6.3). The critical and negative, as well as favorable, aspects of social security makes us aware of its merits and demerits, enabling us to use positive as well as negative appraisals as the basis of institutional reform. Then, I will supplement the issues – that is, gender, duty, and cultural value – that are not sufficiently addressed by the four schools of moral philosophy to establish a more complete ethical system of social security (sections 6.4, 6.5, and 6.6).

6.3

FOUR THEORIES OF MORAL PHILOSOPHY AND THE WELFARE STATE

The Utilitarianism View of the Welfare State In exploring various paradigms of the relationship between values and institutions in the four schools of moral philosophy (utilitarianism,

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contractarianism, libertarianism, and communitarianism), we will start with utilitarianism. Utilitarianism maintains that an action or an institution that maximizes the total sum of individual utilities is socially right. What is to be maximized is formulated in terms of different concepts, such as utility, pleasure, welfare, and happiness. Since these goals appear plausible and attractive, the idea of maximizing social welfare continues to have a prominent place in moral and political philosophy and might be the most active supporter of the welfare state. But as we have seen in Chapter 2, section 2.1, the concept of individual utility as such cannot form the basis of moral judgment. Even if there is no problem with the utility concept, serious objections can be raised to the summation of individual utility, as seen in Chapter 2, section 2.2. Three major criticisms are leveled against utilitarianism: first, it takes into account only the maximization of an index such as utility or pleasure as the criterion of morality and does not consider the relevance of nonutility values such as liberty or excellence; second, it focuses exclusively on the aggregate utility and does not take into account distributive equality or inequality among individuals; and third, it presupposes a unified evaluator of the aggregate utility and ignores the process of collective decision-making by the members of society. These points anticipate the coldness of utilitarianism to the welfare state. If a foundation of social solidarity is sought in the utilitarian philosophy, the answer will be that a summation of individual utilities is considered in the moral valuation of action and institution. Unlike egoism, utilitarianism is indeed an altruistic principle in that it is concerned with utility not only for a single individual but also for all persons equally. However, since its criterion is a social aggregate of satisfaction, institutions cannot be based on the distributional considerations of income, wealth, and utility. If it is assumed that the poor have an inferior capacity for enjoyment, the utilitarian solution is an unequal distribution of income that will produce the greatest social aggregate of utility. The highest value of utilitarianism is efficiency in the production of social happiness. A social security system cannot be derived from utilitarianism. The sole justification of social security by utilitarianism will be that it removes the negative effects of poverty on social stability. If poverty becomes rampant and the poor form the dominant social stratum, there may be social unrest and turbulence. One of the barbarous utilitarian policies often cited is that in the case of social turbulence, a false accusation of the innocent is justified in the name of social stability. If any positive utilitarian view of the welfare state were available, it would be just a reverse case for social stability. Poverty relief by the rich is not for the right or well-being

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of the distressed; the sacrifice of a small number of the rich is justified for the benefit of the whole. In the sophisticated theoretical framework of Henry Sidgwick, benevolence is one of the three basic axioms of utilitarianism, besides justice and prudence (Sidgwick [1874] 1907). Utilitarianism demands altruistic benevolence, because even though people must suffer from being in the worst-off position under the inequality demanded by the utilitarian principle, the acquiescence of hardship and inequality for the benefit of the whole would be impossible without a sense of benevolence. The axiomatic premise of benevolence in utilitarianism can be translated as the perseverance of social injustice. Benevolence is demanded not only for the worstoff but also for the best-off, who are compelled to transfer income to the poor to achieve social stability. Perspectives from Ignorance – Hayek and Rawls To clarify the utilitarian attitude toward social security more fundamentally, we must go beyond the simple argument that utilitarianism regards the social summation of individual utilities as the sole touchstone of moral judgments. For this purpose, it is useful to consult the critique of utilitarianism shared by Hayek and Rawls – that is, the problem of ignorance. Hayek derived the doctrine of liberty from ignorance; Rawls derived the doctrine of justice from ignorance. It is also interesting to note that J.M. Keynes derived his macroeconomic theory also from ignorance (Keynes 1936).8 All three scholars criticized utilitarianism for denying ignorance and pretending omnipotence as the basis of theory construction. In considering Hayek’s theory of knowledge and his distinction between constructivist rationalism and evolutionary rationalism in Chapter 4, section 4.1, we understood that the necessary ignorance of the particular facts that determine the process of society underlies his doctrine of liberty. Utilitarianism is typical constructivist rationalism with the objective of maximizing the social aggregate of utility, and it assumes that the consequences of specific actions and institutions are all known. In this context, it is important to distinguish between act-utilitarianism and ruleutilitarianism. Act-utilitarianism makes moral judgments on the consequences of every individual act; here the need for rules is not acknowledged in principle. Although ordinary moral rules for the actions of individuals exist, they are mere rules of thumb that have summarized the results of utilitarian judgments in particular cases. Act-utilitarianism argues that if a deviation from a rule of thumb is desirable to produce greater utility, one should violate the rule. In criticizing utilitarianism, Hayek did not accept

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the omnipotent assumption that it is possible to calculate the consequences of every individual act. If we accept the assumption of ignorance about the consequences of every act, we must assume some general rules that people should abide by. The general rules of spontaneous order accepted by Hayek mean an abstract order, the particular or concrete content of which is unknown by anyone. For him, the general rules are measures for coping with the ignorance of the consequences of a single act. In contrast, rule-utilitarianism formulates the rules in terms of expediency in producing the social aggregate of utility. This is a self-contradiction because rule-utilitarianism presumes the knowledge of the contributions of a rule to the purported aims of society. For Hayek, although rules are generally accepted in a free society, they are not observed with the intention of producing certain results; rather, they are the consequences of the evolution of human conduct, and the usefulness of general rules proves only ex post. This is a spontaneous order. Hayek regards it as the pretence of reason and the oppression of liberty to design policies and institutions on the assumption of knowledge about means for collective purposes. The denial of ignorance means the denial of liberty. In utilitarian thought, social planners and their advisers are called ‘impartial spectators’ or ‘ideal observers’; they are invested with the omnipotence to compare and aggregate utilities of individuals. They play the role of aggregation in the practice of social choice based on their power of universal sympathy. But such a dictatorial aggregation contradicts democratic procedure. The traditional utilitarian position that calls for maximizing the social aggregate of utility as the moral standard for acts and institutions is called ‘classical utilitarianism.’ Another utilitarian position, which introduces a new standard of maximizing average utility per capita, is called ‘modern utilitarianism’ or ‘average utilitarianism.’ The difference between classical and modern utilitarianism is important, because the modern version is amenable to the theoretical structure of a social contract in which the individuals of the society participate instead of the omnipotent observer. Average utilitarianism maintains that a social scheme that maximizes the utility of each individual is desirable. This new perspective of the utilitarian system of thought differs from the image of constructivist rationalism. For a comparison with Rawls, let us suppose that the place of the utilitarian social contract is in the original position with a veil of ignorance. The use of the concept of ignorance in Rawls is from the ethical point of view, not from Hayek’s epistemological viewpoint. To assume a veil of ignorance is to impose the condition of fairness on all parties to the social contract so as to dismiss the knowledge of their individual identities. Under

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this uncertain condition, average utilitarianism holds that since each person does not know what he will be, what course of life he will take, and what happiness he will enjoy in society, he assumes that he will experience different circumstances with an equal probability and regards the maximization of utility weighted by equal probability as desirable. This is an application of Laplace’s principle of uncertainty. Under the veil of ignorance, the criterion of average utilitarianism amounts to the maximization of expected utility. Cardinal utility theory in average utilitarianism is equivalent to the theory of choice involving risk (Harsanyi 1953). The amount of expected utility consists of three elements: (1) the probability of each person becoming a specific person, (2) the probability of obtaining a specific social situation, and (3) the probability of a specific utility function. Utility function indicates various personal characteristics inclusively. Under the veil of ignorance, a utilitarian person assumes an equal chance of becoming different persons and obtaining different positions. And for the purpose of interpersonal comparisons of utility, average utilitarianism assumes, instead of an ideal observer, a common translating machine, namely a uniform psychological law (Harsanyi 1955). What is problematical about average utilitarianism is the method of evaluating the chances of holding different personal identities and social positions in terms of equal probability – namely, the method of reducing uncertainty to a certainty equivalent. This method may be called a ‘gambling of self.’ In contrast, in Rawls’s original position, persons unanimously support the construction of a social safety net in anticipation of falling into the position of the worst-off. Let us call this method an ‘insurance of self.’ We now have two different approaches to risk and ignorance. Utilitarians say that it is irrational to take an improbable misfortune seriously; you would never cross a street for fear of being hit by a car (Harsanyi 1975). However, although a person is perfectly free to buy a lottery ticket for the fun of it, he should understand that in the choice of permanent institutions one should not neglect the sufferings that might happen to everyone. Social security copes with hardship and misery that are certain to occur as massive social phenomena. Utilitarianism takes into account the strong ‘gambling on self’ but not the weak encountering risk. Utilitarianism thus cannot be the ethics of social security. The Utilitarian View of Democracy and Capitalism What, then, is the utilitarian view of democracy and capitalism, the other two components of the welfare state? Although utilitarianism justifies a sacrifice of some of the people for the sake of the majority’s happiness, it is relentless in attacking the privileged class that prospers by the conventional

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rules at the price of the majority’s happiness. Utilitarians like Jeremy Bentham, called ‘philosophical radicals,’ were originally concerned with political movements and devoted to the establishment of the democratic parliamentary system (Thomas 1979). Thus the utilitarian formula ‘everybody to count for one, nobody for more than one’ advanced the role of progressive political thought advocating participatory democracy, in addition to the procedural role of aggregating utility. If this formula can be interpreted as ‘procedural equality,’ then one can understand that utilitarianism regards individuals as the objects of ‘equal respect and consideration’ and agrees with the norm of democracy (Riley 1988, ch. 12; 1990). Moreover, in view of the difficulty in designing institutions based on the typical assumptions of cardinal utility and the ideal observer, the utilitarian approach in terms of ordinal utility and ‘procedural equality’ might be quite attractive. In other words, provided that interpersonal comparisons of utility are rejected, the utilitarian thesis if confined to ‘procedural equality’ is characteristic of the democratic political process. Indeed, since democracy ensures equal participation in social decisionmaking, its institutions may be interpreted as a proxy for the function of utilitarianism if limited to ‘procedural equality.’ But I am skeptical of this interpretation. First, since the essence of utilitarianism, as distinct from other systems of thought, is the maximization of the social aggregate of utility, the assertion that democracy is supported by an inessential element of utilitarianism lacks reason and force. In fact, the essence of utilitarianism contradicts individual liberty and diversity and is incompatible with democracy. Second, insofar as procedural equality is used in combination with the Pareto criterion, it is insufficient for arriving at democratic social decision-making, and some normative conditions must be added. Since utilitarianism is a self-sufficient normative theory, the idea of utilitarianism confined to procedural equality is hard to imagine. But what is the utilitarian view of capitalism? Mainstream economics provides positive and normative analysis with reference to the capitalist market economy. In spite of the resemblance between utilitarianism and normative economics with regard to the common perspective of welfarism, they are not the same – for three reasons. First, utilitarianism is an interventionist doctrine that dares to infringe on individual liberty in order to increase happiness of the whole, while the defenders of a market economy from the standpoint of economics set a high price on individual liberty and voluntary exchange. Although market theory recognizes the need for government intervention in the event of market failure, there is a gap in principles with respect to such intervention in the case of utilitarianism and economic theory.

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Second, although both start from individual self-interest, there is also a difference in their approaches to social integration and coordination. Utilitarianism assumes that a centralized planner is the organizer of the social aggregate utility or institutional rules, including morality, imposed on the individual. Utilitarianism is understood as the institutional theory of the public sector based on constructive rationalism (Goodin 1995). In contrast, economic theory regards the market as a spontaneous mechanism that is based on private property and exchange; a social perspective such as an economic equilibrium is derived as a result of the interaction of individual actions with the market process. Third, in terms of the scope of analysis, utilitarianism pursues all consequences of actions and institutions based on a single index of utility, whereas economic theory deals only with economic welfare backed with money from an economic transaction. On the other hand, since economic theory is also concerned with aspects of economic performance other than utility, like goods, income, and wealth, there is a further difference between utilitarian welfarism and the economic theory of maximization. For this reason, economic theory can avoid part of the blame for utilitarianism (Posner 1981, pp. 48–87). Economic theory and thought can thus survive without depending on utilitarianism. The Contractarian View of the Welfare State – the Ethical Foundation of Social Security Contemporary contractarianism is beholden to Rawls for a modern formulation of Kantian deontology into a rational contract between moral persons. Rawls’s theory of justice (examined in Chapter 2, section 2.3) not only has provided dissenters from utilitarianism with a theoretical foundation but also has established an ethical basis for the social security system. Historically speaking, the implementation of the social security system and social policy preceded their theory, and values that have supported the practices of the welfare state emerged from the moral judgments of ordinary people. In fact, aid to the poor and the weak was sustained by the altruistic feelings and sense of justice of the community. Utilitarianism could not theoretically formulate the moral sentiments of people. Rawls’s theory of justice succeeded in transmitting the sense of justice guaranteed by the political institutions of democracy and established a paradigm of a just society in terms of a rational social contract for moral persons who are endowed with rights to be considered equally. Among competing moral principles that have proliferated since Rawls, his position is aptly characterized as ‘welfare liberalism’ (Sterba 1995, pp. 11–27).

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To put it simply, Rawls’s principles are twofold: (1) people have an equal right to the basic liberties and opportunities, and (2) social and economic inequalities must benefit the least advantaged members of society. Although social and economic inequalities are inevitable, a just society is structured and governed so that the inequalities are morally justified. Rawls’s second principle articulates such inequalities and thus is called the ‘difference principle.’ If moral principles are accepted by all members of society, the members must support the institutions based on these principles whether they are the least or the most advantaged in that society – in other words, whether they receive the benefits from others or give the benefits to others – because moral principles are universalizable to all. Regarding the institutional implications of the principles of justice (explicated in Chapter 2, section 2.5), three points are particularly relevant to the social security system: (1) the meaning of justice as fairness, (2) the system of insurance as reciprocity, and (3) the role of the principles of justice in coordinating ‘capitalism, democracy, and social security.’ The first point explains the theoretical essence of the principles, the second shows the modus operandi of the institution proposed by the principles, and the third elucidates the place of that institution in the welfare state. First, the essence of the principles of justice is ‘justice as fairness.’ It is characteristic of Rawls’s thought that his principles are derived by a hypothetical social contract in a certain presocial state, which he calls the ‘original position,’ where people are assumed to be behind a ‘veil of ignorance.’ Although in the choice of moral principles one is permitted to behave rationally to pursue his own interest, the assumption of a veil of ignorance prescribes the conditions of fairness in which no one knows his personal identity. But one must assume that a person might be placed in a disadvantaged position and exposed to grave risk, because he has general knowledge that despite individual efforts there are differences in social and economic status owing to natural or social chance. Consequently, the rational behavior of each individual in the original position in favoring his own position will potentially favor all others and lead to a choice of the ‘difference principle’ that will place the least advantaged in the best position. This position is called the ‘maximin’ because the minimum is maximized. Second, consideration for the least advantaged is the core of the social security system. There is a lot of risk in society – disease, disability, poverty, unemployment, old age, and so forth – that is more or less beyond the responsibility of the individual. The principles of justice are essentially a theory of insurance. All people, in principle, pay a small insurance premium as protection against risks that they may encounter. Policyholders who actually experience misfortune are compensated by this scheme of insurance, and those who do not provide resources to operate the system.

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The latter’s advantage, as it were, is obtained in exchange for an insurance premium that compensates the disadvantaged. In this way income is transferred from the advantaged to the disadvantaged. We can call the system of social security, which serves as an agreed-upon mechanism for protection against risk under a veil of ignorance, ‘social security as an ideal type.’ The ideal system of social security as insurance is based on social solidarity in the sense of reciprocity, neither the unilateral benevolence of the rich to the poor, nor the coercion or paternalism of the state urging the transfer of funds. Superficially, income transfer might suggest that social security is altruistic. Yet, on the contrary, it is basically a social scheme of coordination of self-interest from the viewpoint of fairness. Self-interested behavior that does not depend on social security but exclusively on self-help is inefficient in the face of high risk. Justification of the social security system by contractarianism does not depend on benevolence or paternalism, but on an agreement between autonomous individuals. Third, Rawls’s principles of justice were intended to govern the basic structure of society, but they can be interpreted as a consistent way of coordinating the three-layered system of the welfare state – that is, ‘capitalism, democracy, and social security.’ As indicated in Chapter 5, section 5.2, his first principle assures the basic political liberties, and his second principle prescribes fair equality of opportunities and implementation of social policy including social security; according to his ‘difference principle,’ the resultant inequality in economic and social positions is morally acceptable. This is consistent with the three-layered system of the welfare state. Rawls’s advocacy of ‘property-owning democracy’ (in Chapter 2, section 2.5) holds that ‘welfare-state capitalism’ does not embody his principles of justice because it only tries to alleviate income inequality without realizing the prerequisites of the ‘difference principle’ by the diversification of human and physical capital to achieve fair value of political liberty and fair equality of opportunities. Rawls’s idea was nothing more than a formulation of the total system of the welfare state consisting of ‘capitalism, democracy, and social security.’ Within this total system, social security mediates between economic inequality in capitalism and political equality in democracy. As I see it, the system of social security depends not only on the principles of justice but also on the principles of excellence and efficiency, and it aims to transform capitalism and democracy into something fair, decent, and vigorous. Capitalism and democracy are likely to be viewed as harmonious because both rely on individualism. But they are actually hostile. When either one dominates the other, economic power makes politics its own instrument, as indicated by the iron triangle of ‘politics, bureaucracy, and industry,’ or political power suffocates the economy, as is demonstrated by a socialist

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regime. After the fall of socialism, it was claimed that capitalism and democracy had won, but the harmonious sustainability of both systems rather depends on a reliable system of social security. Beyond Rawls As Rawls cogently explained that the principles of justice are inherent in the public culture of a democratic society, the system of social security embodied in the principles of justice depends primarily on the ideals and methods of democracy. According to the conception of moral persons, for a well-ordered society to be realized as an ideal in the political process of a democracy addressed to the solution of public issues, public reason as a political virtue is required (see Figure 5.4 in Chapter 5). The relationship between moral persons and public reason maintains that democracy is not merely a process or procedure; rather, it should realize the principles of justice in the public sphere. Capitalism, another basis of social security, can work according to the two principles of justice. Economic inequality produced by capitalism is morally justified under certain political interventions directed by the difference principle, and the social security program is mainly responsible for this intervention. The ideal of the three-layered citizenship defined by T.H. Marshall is substantively implemented by the three-layered system of the welfare state constructed by Rawls. Although we can accept Rawls’s theory as the philosophical foundation of social security, we must explicitly introduce into his theory the elements that will reinforce his principles of ‘justice’ in view of the subsequent developments of argument in moral and economic theory. These are the values of ‘efficiency’ and ‘excellence.’ (For the relationship between efficiency, justice, and excellence within the moral structure of social security, see Figure 6.1.) One aspect of mandatory social security is a measure to cope with market failure in the area of information; thus the relationship between social security and capitalism should be examined from the viewpoint of ‘efficiency,’ particularly in the reform of the welfare state. In Rawls’s principles of justice, economic and social inequality is allowed as a residual of political and social arrangements. We have to ask how this inequality will accommodate the vigor of capitalism and the prosperity of human beings and ultimately ensure the fiscal sustainability of the social security system. We also have to ask how the efficiency principle will work in combination with the incentives of people in the system of social security. These two challenges mean that it is insufficient to impose a moral restraint on the economy on the basis of ethical considerations alone; in addition, it is necessary to consider the economy’s repercussions on morality, and to examine economic incentives within the morally oriented social security system.

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Since the value of ‘excellence’ has basically to do with the existence of moral people, which is the fundamental premise of Rawls’s principles of justice, the system of social security based on justice must have the prospect of increasing the capability of people and contributing to the creation of positive cultural values through the security of life. This is the problem of linkage between justice and excellence, which will require us to develop an ethics of care corresponding to justice, on the one hand, and the ethics of duty and responsibility corresponding to rights, on the other. We also need to emphasize the positive objectives concerning the quality of human existence rather than the negative objectives of social security. The Libertarian View of the Welfare State Before the term ‘libertarianism’ appeared, Hayek and Milton Friedman among others were called neo-liberalists and admired free markets; they asserted the size of the welfare state to be small, although they acknowledged its functions. Here our focus is Hayek, who had a securer philosophical basis than anyone else. Hayek did not think that the state activity should restrict its responsibility to the maintenance of laws and order, but that it should also be concerned with the provision of public goods, the control of externalities, and social security. For him, the method rather than the scope and purpose of state activities was important, and individual freedom of choice in the demand for and supply of social services was essential. Unitary management by the bureaucracy would produce exclusive power and coercion and become a threat to liberty. ‘It would scarcely be an exaggeration to say that the greatest danger to liberty comes from the men who are most needed and most powerful in modern government, namely, the efficient expert administrators exclusively concerned with what they regard as the public good’ (Hayek 1960, p. 262). This description is reminiscent of a remark by J.S. Mill a hundred years ago: There cannot be a combination of circumstances more dangerous to human welfare, than that in which intelligence and talent are maintained at a high standard within a governing corporation, but starved and discouraged outside the pale. Such a system, more completely than any other, embodies the idea of despotism, by arming with intellectual superiority as an additional weapon, those who have already the legal power. (Mill [1871] 1965, p. 943)

These opinions raised an important point demanded of the institution of democracy from the standpoint of classical liberalism. Hayek holds that social security should be restricted to minimum relief for those who are unable to protect themselves against the risk of old age,

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disease, unemployment, and the like. For him, the justification of mandatory social insurance is not that people should be coerced to serve their own interests but that, by neglecting to make provision, they would become a charge to the public (Hayek 1960, p. 286). According to this view, social security is not based on the idea of social solidarity defined by reciprocity; it is such an infringement on individual liberty that it should be minimized. However, the reason for poverty relief is not shown beyond the remark that it is indisputable. In any case, social security is simply a necessary evil under the principle of liberty. Hayek’s argument was ultimately derived from the view of the right to liberty as well as from the suspicion of social justice. He claims that social justice is a mirage that leads to socialism or totalitarianism; and that it is a violation of liberty to attempt to redistribute income, although one can make only arbitrary judgments about the results of such distribution. Instead, he puts forward procedural justice or ‘rules of just conduct’ that regulate individual acts in advance of distributional results (Hayek 1973, p. 55). Surprisingly, he agrees with Rawls’s theory of justice, although this does not seem to be a deliberate judgment (Hayek 1976, p. 100). This might be because he praises Rawls’s emphasis on procedural justice, but full acceptance of Rawls’s principles of justice is inconsistent with Hayek’s theory of liberty. The claim of libertarianism represented by Robert Nozick minimizes the state itself (Nozick 1974). For him, the functions of a state must be restricted to those of a night watchman, that is, the protection of individuals’ rights to life and property and the enforcement of free contracts. As shown in Chapter 3, section 3.2, his entitlement theory of justice consists only of the principles of initial acquisition, transfer, and rectification of injustice. This theory is characterized by a version of self-ownership that prohibits a separation of an ‘owning-self’ and an ‘owned-self’ and sees the redistribution of income by social security as contrary to its basic values. The libertarian view does not include any moral critique of the market mechanism, the underlying distribution of property, and its consequent distribution of income. As a result, there is no path from this philosophy to the welfare state. The Libertarian View of Capitalism and Democracy The market is the place where Hayek’s spontaneous order prevails and Nozick’s voluntary exchanges based on self-ownership occur. For them, the market satisfies the conditions for the realization of individual liberty. Influenced by this idea, many think that liberty means participation in and subjection to the market. But liberty thus realized in the market is first,

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economic freedom and nothing else, and second, negative freedom and nothing else. Although Friedman (in Capitalism and Freedom, 1962) argued that economic freedom is a prerequisite of other freedoms, including political freedom, the whole group of freedoms that he advocated represented negative freedoms. Because libertarian thought is generally confined to ethics, it is blind to recent developments in economic theory and a group of propositions on risk, uncertainty, and information, in particular. These propositions are concerned with market failures due to imperfect or asymmetrical information and provide an account of the functions and raison d’être of the welfare state from the viewpoint of efficiency. Libertarianism’s evaluation of market efficiency is inadequate and suffers from an ideological bias. The libertarian view of democracy is clear in Hayek. As noted in Chapter 3, section 3.1, liberalism and democracy are different; liberalism has to do with what laws should be, whereas democracy is concerned with how law should be made. Although libertarians accept democracy, they do not believe that what is determined by democratic methods is necessarily good, for democracy is apt to become demagoguery or totalitarianism. According to Hayek, people confuse liberalism and democracy; democracy is not the goal but the means of a political system. Whether or not what is determined by majority decision is desirable depends on different principles, which Hayek thinks are the principles of liberty. He contends that liberalism should restrict the exercise of political power in a democracy. This should be the condition for keeping democracy. The justification for democracy, Hayek argues, is not that democracy automatically protects liberty but that it encourages education to understand public issues. The process of developing opinions about public issues is dynamic, and it is possible for a minority to change the views of the majority. In Hayek, this is the role of public reason. To summarize the libertarian view of institutions, capitalism is the most favorable to the protection of negative liberty, and democracy is likely to oppose liberty through the power of the state, so that it is the objective of democracy to protect negative liberty. Social security is not harmonious with liberty; it is merely a necessary evil supported by humanitarian feelings. It is because social security is not provided with any serious ethical foundation that it cannot coordinate capitalism and democracy. The construction of the three-layered institutions in libertarianism is this: the supreme principle of negative liberty is extracted from the ethical basis of capitalist society and contrasted with the principle of justice in contractarianism extracted from democratic society. Libertarianism requires procedural democracy to reduce the role of the government to realize the ideal of liberty. Its negative position on social security is the

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natural consequence of such a view of capitalism and democracy; even on this position social security is termed a safety net, but its size is minimal and it does not have an ethical foundation but is merely a necessary evil. The Communitarian View of Economic and Political Institutions The distinctive characteristic of communitarianism is that it upholds ideals but also covers the evaluation of institutions because of its empirical method. Communitarianism is critical of the roles of markets and the state and focuses on the community as an institution from a normative viewpoint. Individuals do not directly relate to markets or the state, but belong to various groups in society; through the relationships formed in these groups they acquire common values and lifestyles and engage in a social life. In these relationships self-interest is not necessarily the dominant motive; instead, harmony between individual rights and social responsibility, between autonomy and commonality, and between liberty and common goods is emphasized. In reality, the market is characterized by the economic power of firms and the state by the political power of bureaucrats. Communitarianism is aware of the danger to individuals who plunge directly into the market and the concentrated power of the state. Whereas the liberal schools have innocently presumed the free and equal but unguarded individuals, communitarians maintain that the community is, so to speak, a citadel for protecting those individuals. Furthermore, for them, the community forms the forefront of the battle to revitalize a society that is in moral danger. What is communitarianism’s view of institutions? Here it is necessary to identify its notion of community. In contrast to the individualistic view of society in which individual people directly compose a society, communitarians focus on various kinds of community existing between individuals and society. Community means, first, an entity in the form of groups of people, such as family, school, business organization, church, region, race, and the state, and second, a particular relationship between persons, such as values, meaning, culture, languages, goals, and lifestyles shared by the individuals (Frazer 1999, p. 66). The specific forms that communities may take are not fixed, but the common approach of communitarians is to focus on the Gemeinschaft as a moral network of ‘individuals, community, and the state’ instead of the Gesellschaft as a contracted relationship between ‘individuals, markets, and the state’ and to consider various groups including family with reference to the Gemeinschaft relationship. For instance, Amitai Etzioni, who emphasizes the practical political forum, calls the four elements of ‘families, schools, communities, and a community of communities (the society at large)’ the moral infrastructure of a given society

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(Etzioni 1993, pp. 248–9; 1996, pp. 176–7). The family is the basic block of that moral infrastructure. Although communitarians do not necessarily hold the traditional view of gender, their emphasis on family values is controversial, particularly in the context of feminism. Their conception of family has an important bearing on the clarification of the ethical basis of social security through a series of issues such as population, labor, marriage, child-rearing, elderly care, and divorce. According to the communitarian view of markets, the evaluation of economic scarcity by markets does not properly value the desert of persons. The prices established in markets are economic evaluation of what MacIntyre calls ‘external goods.’ Since the society advocated by communitarians is primarily a moral community and the bonds of communities are ‘internal goods,’ the measure of a person’s contribution to his community should be of internal goods, not external goods. In this context, business firms should not be excluded from the concept of community even if they belong to the Gesellschaft. Although they are voluntary associations, they form an important area to which communitarian thought is applied in addition to families and schools. As argued in Chapter 4, section 4.6, firms as well as other associations foster the ethics of trust, which is applied to a community as a safety zone against the barrier of trust costs and is different from the universal ethics of justice. On the other hand, insofar as a firm is an organization whose existence can be explained in terms of the barrier of transaction costs in markets, it is not surprising that it molds the ethics of trust, which is different from the ethics of market competition. Thus the ethics of trust based on a community works as a defense against both the barrier of transaction costs and the barrier of trust costs. In contrast with other contemporary schools of thought, in evaluating the tripartite system of ‘capitalism, democracy, and social security,’ communitarians have discovered the importance of intermediary entities such as families and firms in addition to ‘individuals, markets, and the state.’ Families and firms are essential in investigating social security from a practical institutional perspective. The communitarian view of politics and democracy is characterized by the role of responsibility in maintaining the rights we take for granted. Various communities endow individuals with identities, roles, and responsibilities, that mediate between those individuals and the state, both located in a vacuum so to speak. Particularly, villages and towns bring politics down to the level of ordinary life and act as a brake on political indifference. There is a possibility of linkage with various nonprofit organizations (NPOs). In these communities of voluntary participation, practical education and training for democracy are emphasized, and at the national level communitarianism appeals to the tradition of republicanism.

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Republicanism is a synonym for civic humanism that has captured the limelight as a paradigm in the history of political thought. It explains the Italian republic during the Renaissance and British and American political culture in the seventeenth and eighteenth centuries. Some communitarians seek support in this new paradigm given the similarity of thought. According to J.G.A. Pocock, the originator of the paradigm, Civic humanism denotes a style of thought . . . in which it is contended that the development of the individual towards self-fulfillment is possible only when the individual acts as a citizen, that is as a conscious and autonomous participant in an autonomous decision-making political community, the polis or republic . . . The republic could persist only if all its citizens were so far autonomous that they could be equally and immediately participant in the pursuit of the universal good. (Pocock 1971, pp. 85–7)

In other words, the republic can be maintained by means of civic virtue, with citizens pursuing the common good through political participation rather than being absorbed in the private sphere. Communitarians support this thesis. Yet it is uncertain whether the traditional notion of republicanism is the same as the contemporary republican paradigm, and whether communitarianism is the same as republicanism (Haakonssen 1993). It is even argued that republicanism is different from communitarianism and leans toward libertarian negative liberty (Pettit 1997). The Communitarian View of Social Security Although all authors do not discuss the communitarian view of social security, Michael Walzer offers a typical argument (Walzer 1988). He regards the present welfare state as a system of nationalized distribution characterized by centralized control, bureaucracy, and uniform regulation. Instead of this system, he advocates balancing the socialization and the nationalization of benefits, because voluntary mutual aid in a local community would lead to the delivery of various levels and forms of welfare services. The socialization of social security would allow a return to the traditional practice of people extending a helping hand to one another in small communities, among them families, churches, business firms, and charities. A trend of thought in the welfare state discourse called ‘from a welfare state to a welfare society’ receives its philosophical foundation from communitarianism. In communitarianism, social solidarity is one of the common goods of a community and is achieved by the civic virtues cultivated within that community. In contrast, in contractarianism, social solidarity is an

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embodiment of the principles of justice derived under hypothetical conditions of rationality and fairness. As seen in Chapter 3, section 3.3, this conflict can be treated as a difference between historical and theoretical approaches to the design of a social system rather than as a difference between virtue-based and right-based approaches to an abstract moral theory. So viewed, the two approaches can be integrated to enable a communitarian vision of a decentralized social security system on a practical level of institutional design, accepting at the same time the principles of justice that contractarians derive on a theoretical level of institutional design. Communitarians emphasize the importance of community as the locus not only of a good life, but also of virtue or excellence cultivated by the community. But there is little attempt to argue for excellence in the communitarian literature. In view of the connection between the community and virtue, communitarian thought on the welfare state should be concerned with the community as the source of welfare, but also with the way in which social security would import the ethics of excellence. The core of the challenge is positive social security, which is designed to develop human capabilities. Summary and Preview The section has presented a configuration of the interrelationship between the values (efficiency, justice, liberty, and excellence) and the institutions (capitalism, democracy, and social security) drawn by the four schools of moral philosophy. Since each moral theory interprets social security somewhat differently, more than one conception of the welfare state is feasible. However, if it integrated the tripartite system based on the priority of right, contractarian theory would offer the most powerful image of the welfare state. In practice, what values do reside in the institutions of the welfare state depend on the economic, political, and social elements of particular countries. In other words, real elements are a catalyst that fixes values on institutions. Two practical concerns emerge from the arguments presented here; both are criticisms of the abstract argument about values. The first is the feminist critique that gender inequality or discrimination underlies almost all theories of moral philosophy (section 6.4). The second is a citizenship-oriented critique that rights consciousness has tended to bias moral theory (section 6.5). If we are to develop the ethics of social security along contractarian lines, both criticisms must be taken seriously. After examining these criticisms to enrich the ethics of social security, we will investigate a broad framework for viewing the system of social security (section 6.6).

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FAMILY, GENDER, AND THE ETHICS OF CARE

Typology of the Welfare State The welfare state, as we have observed, can be understood from two perspectives: the Gesellschaft relationship between ‘individuals, markets, and the state’ and the Gemeinschaft relationship between ‘individuals, families, and the state.’ On the one hand, though people have spent their lives participating in the market, the state now provides them with social security in place of part of the functions of the market. On the other hand, though people have spent their lives belonging to families, the state now provides them with social security in place of part of the functions of families. In this way the welfare state consists of two elements: freedom from the market (de-marketization) and freedom from the family (de-familization). ‘Market, family, and the state’ are the sources of welfare and the managers of social risk. Gøsta Esping-Andersen calls these sources ‘welfare-state regimes,’ of which, based on the differences in the relationship between them, he distinguishes three types: liberal, social democratic, and conservative (Esping-Andersen 1990). The distinction between types depends on which is the major source of welfare, ‘market, family, or the state.’ To identify this major source, EspingAndersen has introduced the concepts of ‘de-commodification’ (freedom from the market) and ‘social stratification,’ meaning the degree that people can be independent of the market because of social security and the degree of equalization between classes because of social security, respectively. In a liberal welfare regime, the market maintains a central role as the source of welfare, and the state appears on the stage only in residual and marginal cases where the market cannot function. The state provides social security in the form of social assistance and a means test. The degree of independence from the market is low, as is the degree of reduced inequality. The dominant themes of this regime is liberty and individual responsibility. According to Esping-Andersen, this model applies to the Anglo-Saxon nations, including the US, Canada, Australia, Ireland, New Zealand, and the UK. A social democratic welfare regime regards the state as the central provider of welfare and strongly supports both de-marketization and de-familization. The provision of welfare is based on universalism. This regime is characterized by the rights of individuals to liberty and equality. The state provides universal health care, pensions, elderly care, and child care not only to relieve those who spill over from markets and families, but also to solve the inequities inherent in markets and families. Access to welfare services is ensured as a right of citizenship. In this category are the Nordic countries of Denmark, Norway, Sweden, and Finland.

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In a conservative welfare regime, the traditional family is the primary manager of risk. Welfare policy is based on the ideology of communitarian solidarity centering on familiarism and statist paternalism, not on the notion of universal rights. The state intervenes as the provider of social assistance when community mechanisms do not work. Hence de-marketization is limited. In terms of status segmentation and stratification, this model is called a corporatist regime. Social insurance based on occupational groups has evolved with differential benefits. This model is found in Austria, Belgium, France, Germany, Italy, the Netherlands, and Japan. Our concern here is not the validity of typology or national classification. We pay attention to practical factors that mediate between values and institutions in order to complete the ethics of social security. From this perspective, the significance of typology is that the interrelationship between the values and institutions of social security has been shaped into plural forms through the medium of structural factors based in reality. In the preceding section, we examined whether each of the four positions in moral theory can be interpreted as a theory of the welfare state. Now we might suppose that libertarianism, contractarianism, and communitarianism, but not utilitarianism, could underlie different types of welfare states. Broadly speaking, we might suppose, first, that the liberal regime is a minimal welfare state with a major emphasis on the market as the source of welfare, supported by libertarianism; second, that the social democratic regime is a welfare state advocated by the Rawlsian principles of justice; and third, that the conservative regime is a welfare state built on family and other corporations, advocated by communitarianism. Then what about utilitarianism? It seems that utilitarianism was appropriate for the social policy exemplified in the British Poor Law or Bismarck’s Social Insurance Laws, which focused on the maintenance of law and order and was based on paternalism. The present welfare state thus can dispense with utilitarianism. Problems Raised by the Welfare State Typology It follows that the types of welfare states are not determined by the single criterion of the size of a state. This has several implications for the provision of welfare services. First, Esping-Andersen’s typology indicates that the type of welfare state depends on how ‘markets, families, and the state’ relate to one another. Even when state involvement in the provision of social services is low (or high), the roles of markets and families can be so diverse that different pictures of the welfare state will emerge. Second, questions arise concerning the auxiliary concepts of decommodification and social stratification, both of which Esping-Andersen

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other is civic republican citizenship, which focuses on duties (Heater 1999). T.H. Marshall’s theory of citizenship belongs to the first interpretation. It is concerned with the establishment of the tripartite rights (civil, political, and social rights) as the maturation of democratic societies, which is realized by the coordination of the tripartite institutions (capitalism, democracy, and social security). In my view, this relationship between these tripartite rights and tripartite institutions is theoretically explained by Rawls’s principles of justice. According to this interpretation, the theory of citizenship has been formulated by the theory of rights and the corresponding theory of institutions; this undoubtedly signifies a theoretical advance. Against this set of theories, criticism from feminism and multiculturalism has maintained that, although equal rights are formally secured to all, women and cultural minorities are not given a substantive assurance of those rights. With the rise of communitarianism since the 1980s and a new interpretation of the nature of citizenship since the 1990s, we are once more confronted with the relationship between individual citizens and their virtues in a community (Kymlicka and Norman 1994). In other words, we need a theory of the nature and virtues of individuals within institutions in addition to the theory of rights and institutional frameworks constructed by contractarianism. I believe that this calls for an expansion of the ethics of social security; that is, we should consider the problems of social security from the viewpoint of the ethics of the qualities and virtues of individuals in a community. The second conception of citizenship – the civic republican interpretation – starts from the notion of a person situated within communal institutions, which is different from a mere person. Whereas the theory of rights begins with an abstract ‘unencumberred self’ and demands certain institutions to implement the principles of justice, a citizen in the republican theory of citizenship is already situated under the principles of justice and the corresponding tripartite institutions of ‘capitalism, democracy, and social security.’ Since the two kinds of individuals represent different dimensions, they must be distinguished from one another, but they are not contradictory. While the ‘unencumberred self’ is characterized by rights and autonomy, a citizen living under the institutions that guarantee various rights has both individualistic and collectivist elements and is to be defined by civic virtues, duties, and obligations defined by the community. In contrast to the stage identified by T.H. Marshall, I argue that a contemporary theory of citizenship has been developing from a theory of rights to a theory of virtues.11 Its significance lies in the pursuit of moments in which a theory of rights and a theory of virtues are to be combined, beyond the stage of communitarian critiques of contractarianism and liberalism.

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Civic Virtue and Self-respect According to our framework of ethical theory, the theory of rights (or justice) addresses institutions as the object of moral valuation, whereas the theory of virtue (or excellence) evaluates the nature of human existence based on the priority of right over virtue. In the former individuals are seen as figures with an abstract moral personality, whereas in the latter they are regarded as the existence possessing the identities of citizens. As argued in Chapter 3, section 3.4, the virtues generally expected for human existence include commonsense morality, encompassing wisdom, courage, modesty, honesty and so forth. These virtues not only benefit those who possess them, but they also are valuable to all persons owing to their nature of serving the public goods. Virtues and excellence must be understood not only as the qualities of particular persons, but also from the viewpoint of the social good they promote. Just as we can distinguish between two approaches to virtue – ‘virtue, existence, and human nature’ and ‘virtue, practice, and community’ – so we can compare the excellence of human nature with the excellence of human practice. If we delineate the nature of existence, more specific virtues can be defined. Thus existence as a citizen requires civic virtues. In addition to the general categories of virtue cited above, civic virtues must include ‘civil, political, and social duties’ in accordance with ‘civil, political, and social rights’ in citizenship.12 Capitalist societies founded on ‘civil rights’ require the ethics of individual autonomy and responsibility corresponding to strict economic laws. Effective management of a democracy that ensures ‘political rights’ needs the ethics of political participation. And a system of social security for achieving ‘social rights’ requires the ethics of social solidarity to care for the weak. Therefore, to develop a theory of citizenship means to inquire into the virtue of existence as citizens, situated under the tripartite institutions of ‘capitalism, democracy, and social security,’ beyond the general theory of virtue as commonsense morality or the abstract moral theory of virtue. Whereas we have examined the ethics of institutions in Chapters 4, 5, and 6, we now consider the ethics of existence. Furthermore, in light of our hypothesis that social security is to mediate between capitalism and democracy, citizens involved in the provision of social security must coordinate and harmonize different citizenships in economic markets and the political forum. Here, let us consider again the notion of Kantian moral persons, the value premise of Rawls’s principles of justice. Moral persons have the two moral powers of good and justice and recognize the right to equal respect and consideration. The basis of social cooperation is found in each man’s capacity for a moral personality, and the principles of justice strive to

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protect this right. It is emphasized that the principles of justice impose the moral duty of compliance because these principles are chosen by a social contract. Then, in collective decision-making under democratic institutions embodying the principles of justice, the ideal of citizenship imposes the moral duty of civility (Rawls 1993, p. 217). This duty is synonymous with ‘public reason’ (explained in Chapter 5) and is inherent in the notion of virtue. Hence, for Rawls, the conception of justice in democracy consists of two parts: the principles of justice and public reason (ibid., p. 253). This would suffice for the virtue required of a citizen in the public sphere or political forum. However, Rawls, as well as scholars of communitarianism, citizenship, and civic republicanism, tends to argue civic virtue narrowly and exclusively as political virtue, confining the notion of citizenship to the sphere of politics. They do not refer to the virtue of persons in the private sphere, which primarily covers family and markets. Feminist ethics, as noted, which rejects the traditional theory of citizenship, is an issue of the welfare state. If the ethics of care were in a position that is coordinate with the ethics of justice, both would provide the duties and rights of social security. With regard to various social practices including market activities, there is an ethics of self-help and innovation. In the discussion of the ethics of competition in Chapter 4, those virtues that promote self-interest, such as autonomy, initiative, progress, industry, and prudence, were called a ‘virtue of competition’ and were identified with intrinsic good. Insofar as various social practices depend on free competition, activities in the private sphere realize these virtues. Kantian moral persons act in both the private and public spheres, emphasizing the concept of good and the sense of justice. According to Rawls, under the institutions embodying the principles of justice, the right to equal respect and consideration is esteemed and self-respect is achieved. As indicated in Chapter 5, the mere claim of right does not promote selfrespect. For one to deserve respect from others, he must try to fulfill the standard of excellence in social practice in the public and private spheres. Self-respect is a self-evaluation of existence from the viewpoint of duty. Institutions, Acts, and Existence in Citizenship If the theory of citizenship should be concerned explicitly with rights and duties in the tripartite institutions of ‘capitalism, democracy, and social security,’ we must first summarize the argument in Chapters 4, 5, and 6 to derive the ethical implications of the three aspects of ‘institutions, acts, and existence’ in each institution. This argument is tabulated in Table 6.2. Here, the characteristics of capitalism and democracy are not repeated, but the features of social security are summarized. The social purpose of

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Table 6.2

Institutions and their ethical implications Institution

Act

Existence

Capitalism

Market as a system of the collection and transmittance of information

Innovation and adaptation through the profit incentive

Ownership-oriented, self-interested man

Democracy

Collective decisionmaking based on the assurance of value plurality

Participation in public issues with public reason

Progressive man through participation and discourse

Social security

Collective control of risk

Social solidarity

Moral person with rights and duties

social security as an ‘institution’ is to ensure the collective control of risk. An ‘act’ of individuals under the social security system can be described as a practice of social solidarity consisting of social rights and duties. This represents the positive side of the system, whereas its negative aspects are the moral hazards and moral dilemmas caused by social security. These two elements parallel an act under the democratic system, whose positive value is the political participation of persons with public reason and whose negative value is self-interest in politics. They can also be compared with an act in capitalism, whose positive value is innovation and adaptation based on individual initiative and whose negative value is the immoral pursuit of profit. Moral persons, the value premise of Rawls’s theory of justice, are the essence of the existential character of persons in social security. The institutional complex that aims to realize moral persons is the welfare state consisting of ‘capitalism, democracy, and social security.’ It is not that social security alone as a part of the complex requires moral persons as its basis. Three kinds of persons are specified: (1) those in the capitalist system who benefit according to their merits, (2) those in the democratic system who are progressive through participation and discourse, and (3) those in the social security system who are involved in the redistribution of resources through the scheme of insurance. In the welfare state, these three kinds of people are integrated into moral persons with rationality and impartiality. The existential aspect of citizenship constitutes these plural selves, and virtue ethics instead of justice ethics makes a moral valuation of their existence. The criticism raised against the traditional liberal style of citizenship is concerned with virtue or excellence in ethics. Citizenship scholarship that

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has been developed to explain the tripartite institutions of the welfare state from the viewpoint of rights is now expected to design a larger and more consistent paradigm by paying attention to the existential aspect of citizens.

6.6

CULTURAL VALUES OF WELL-BEING

The Three-dimensional Interrelationship between Values and Institutions Figure 0.1 in the Introduction presented a skeleton of the three-dimensional interrelationship between values and institutions. We are now able to put flesh on it. We have considered ‘efficiency, liberty, justice, and excellence’ as values, ‘utilitarianism, contractarianism, libertarianism, and communitarianism’ as schools of thought, ‘liberal, social democratic, and conservative regimes’ as welfare state regimes, and ‘capitalism, democracy, and social security’as institutions. Although these various dimensions have similarities and differences, they seem to maintain an overall consistency. To identify consistency between values and institutions, we need definition and interpretation. In Figure 6.2 the operational value languages ‘efficiency, justice, and excellence’ appear on the X axis (value), these three being combined with the basic value languages ‘good, right, and virtue’ and related to three ethical approaches to ‘acts, institution, and existence’ respectively. Here, liberty is excluded because it is indispensable to any viewpoint, not a monopoly of libertarianism or a liberal regime. The content of liberty varies according to the core conceptions of particular positions. On the Y axis, the schools of thought ‘libertarianism, contractarianism, and communitarianism’ and the welfare regimes ‘liberal, social democratic, and conservative’ are alternatively measured. Although we have examined utilitarianism as a school, it bears no relationship to the welfare state. With regard to the institutions on the Z axis, we have distinguished between ‘capitalism, democracy, and social security,’ the total of which we call the welfare state. Here, the Z axis contains the practical institutional apparatus ‘market, state, and community (family).’ The welfare state is the framework for integrating these economic, political, and social institutions, and different welfare regimes depend on how the institutional apparatus are differently weighed in the integration. The welfare state is feasible for all three regime types, each of them depending on different values and different apparatus for providing welfare. Thus, the three regimes are represented in Figure 6.2 respectively as the combination of ‘efficiency and markets’ (A), ‘justice and the state’ (B), and

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The ethics of social security (regime) Y (school) conservative

communitarianism

social democratic contractarianism

liberal

libertarianism

market

efficiency

state community

justice A

excellence

X (value) Z (institution)

B

C

Figure 6.2 The three-dimensional interrelationship between values and institutions ‘excellence and community’ (C). But in light of moral theory, the three regimes do not have the same rank. The supreme value of the welfare state that has led the developments of citizenship is ‘justice,’ and the social democratic regime based on contractarian moral principles of justice has reached the stage at which ‘civil, political, and social rights’ are fully established. Both markets associated with the value of ‘efficiency,’ on the one hand, and the community characterized by the value of ‘excellence,’ on the other, must be subordinate to the institutions of ‘justice.’ Since the three regimes are ideal types, an actual welfare state can include different ideal types in different degrees. Therefore, the welfare state constructed ideologically on the basis of justice can introduce in reality the elements of efficiency and excellence. Because the welfare state is not a partial institutional system but a complex of ‘capitalism, democracy, and social security,’

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it is possible to reconstruct it by reshuffling the weight given to the combination of values (the X axis) and institutions (the Z axis). Welfare state studies in the ideal and in reality are concerned with differences between the combinations A, B, and C in Figure 6.2. On the one hand, since in view of the place and role of justice in the ethical system, the ethics of social security by the state takes precedence over the ethics of market and community, there must be convergent tendencies from A to B and from C to B. On the other hand, since in the actual management of a welfare state, efficiency and excellence are required within the system, there must be divergent tendencies from B to A and from B to C. According to the relative strength of convergence and divergence, countries classified as a particular welfare regime can shift to another regime. The political sociology of welfare state reform addresses the movements of vectors in different directions. Whatever the observation of reality may be, my basic thesis is that the combination B of ‘justice and the state’ offers the principles of welfare state institutions. In contrast, the combination A of ‘efficiency and market’ gives the methods of welfare state management, and the combination C of ‘excellence and community’ provides the goals of the welfare state system. In this interpretation of coordination, the trinity of ‘values’ – that is, ‘right’ for institutions, ‘good’ for acts, and ‘virtue’ for existence – can be embodied coherently in the ‘institutions’ of the welfare state. The Framework of Society in Stock Concepts Before proceeding to the issues of social security reform, let us consider the most comprehensive conceptual framework of the social security system. In the previous section, we have taken into account two relationships of ‘individuals, markets, and the state’ and ‘individuals, family, and the state.’ Markets are the places where goods and services are produced, while families are the places where birth, child-rearing, and schooling of children take place. The welfare state strives to realize social rights through the channels of ‘de-marketization’ and ‘de-familization.’ The direct function of social security is to ensure that the basic needs of individuals are met by the public ‘safety net’ and ‘springboard’ independently of markets and families. But the ultimate goal of social security is to contribute to the sustainability of society by preparing efficient, just, and excellent institutions, that satisfy the standards of ‘good, right, and virtue.’ From this perspective, two points are important. First, although social security means de-marketization and defamilization from the microscopic viewpoint of a single receiver of social benefits, it can never be independent of markets or families from the

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macroscopic viewpoint of society, because the economic resources of social benefits are only produced in markets and the human resources of social benefits are only produced in families. Second, sustainability of society is not conceived in terms of the flow concept such as income or utility, but in terms of stock concepts, because a flow becomes extinct within a period of time. The notion of sustainability is possible only in terms of a stock continuing over periods through time. From this perspective, markets are characterized by ‘wealth’ as economic capital and families by ‘population’ as human capital. There are contrasting approaches to society: microscopic versus macroscopic, flow versus stock, and so forth. Macroscopic and stock approaches are essential to an analysis of social institutions, because, as mentioned above, sometimes they pay attention to the social purposes or functions of institutions that are not susceptible to a microscopic approach starting from the incentives and behavior of individuals. Society as a fair system of cooperation over time must be judged by what social stock is transferred from one generation to the next. The object of transfer is not limited to wealth and population. Included as well are the ‘environment,’ ‘institutions (law, morality, and custom),’ and ‘culture.’ The environment as natural capital, institutions as social capital, and culture as cultural capital also constitute the concept of stock (capital), from which the total flow of human activities and well-being is derived. The functional relationship is depicted in Figure 6.3. Social activities constitute the process through which human capital (H) produces cultural capital (C) through wealth (economic capital E), environment (natural capital N ), and institutions (social capital S). In their functional form, social activities are expressed as: C  f(H: E, N, S)

(6.1)

All the activities of individuals in society are in pursuit of something valuable, which, following the Neo-Kantians, we call ‘cultural value.’ Evaluation of a society depends on the quantity and quality of the five kinds of stock, and the total index of the evaluation is represented by cultural capital C. As mentioned in Chapter 3, section 3.6, whereas culture in a narrow sense refers to activities in particular fields such as science, the arts, and thought, in a broad sense it means the lifestyle and identity of a community revealed by all human activities. Through the intergenerational succession of cultural capital, human capital H is expanded in quantity and quality. Compared with this broad framework of society, the long-term perspective of economists is limited to economic development by capital accumulation. They regard the process by which labor (H) and capital (E)

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H: human capital (human being)

C: cultural capital (culture)

E: economic capital (wealth) N: natural capital (environment) S: social capital (institution)

Figure 6.3

Society in stock concepts

produce increasing income as a rise in economic well-being. Based on this reasoning, they are exclusively concerned with the growth of wealth, but wealth is only part of the stock that is to be considered. Economists’ preoccupation with economic growth is likely to entail the destruction of the natural environment, the decay of social morality, and the deterioration of cultural activity. Within this framework population is not a mere statistic; rather, it should be considered as human existence with physical, intellectual, and moral faculties and as the core of this framework. Excellence in the population’s contribution to cultural capital is the ultimate goal of human society beyond efficiency and justice. The young people should be responsible not to older generations but to younger generations with regard to what kinds of total capital should be transferred. Population is a central element of this framework of society. In summarizing the ethics of social security in the context of the intergenerational succession of the five kinds of capital, what can we say?

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Social Security and Well-being Social security has been considered a safety net in supporting the well-being of people; in other words, it is an institution that provides minimum services to meet basic needs. But social security is also a springboard to help people develop their capabilities for excellence. Since the social security system embodies a group of moral principles, as shown in Figure 6.1, it is in a position to coordinate the ideals of capitalism and democracy. I have emphasized the value of excellence as the moral basis of social security rather than the values of justice and efficiency, which are often attributed to it. Excellence remains not only the criterion for evaluating the existential aspect of human existence, but also mediates between justice in the public sphere and efficiency in the private sphere. Institutions including social security, referred to as ‘social capital S’ above, represent the entire social framework of norms, under which economic capital and natural capital constitute instrumental resources for human activity in various branches of social practice. Thus, so-called green ethics must solve the conflict between the economy and the environment. However, the most important ethical issue is the quantity and quality of human capital H that should lead to the production of cultural capital C. So viewed, institutions including social security must be such that human beings and culture can flourish to the maximum extent. This is the way in which the ethics of perfectionism evaluates the cultural value of well-being. The combination of the five categories of stock determines our conception of well-being, and the actual choice of that combination is the task of deliberative democracy.

NOTES 1. For contemporary anthologies of the welfare state, see Goodin and Mitchell (2000), Pierson and Castles (2002), and Deakin, Jones-Finer, and Matthews (2004). For an anthology of the economic analysis of the welfare state, see Barr (2001b). 2. The idea of transforming social security from a safety net to a springboard is seen in the report of the Commission on Social Justice at the Institute for Public Policy Research, UK, which became the foundation of the ‘the third way,’ the manifesto of the British Labour Party. See Commission on Social Justice (1994, p. 20). 3. Also see Nussbaum’s list of ‘central human capabilities,’ which we referred to in Chapter 3, section 3.5 (Nussbaum 2000, pp. 78–80). 4. See Barr (1992; [1987] 1998). Barr gives two groups of functions of the welfare state: (1) poverty relief, redistribution of income and wealth, and reduction of social exclusion (the ‘Robin Hood’ function), and (2) insurance and redistribution over the life cycle (the ‘piggy-bank’ function). The second function relates to ‘efficiency’ and is the response of the welfare state to the issues of risk, uncertainty, and information. See Barr (2001a). 5. This is a controversial issue and will be discussed in Chapter 7, section 7.5.

270 6.

7. 8.

9. 10. 11. 12.

Institutions In 1976 William Robson wrote: ‘There is at present no philosophy of the welfare state and there is an urgent and deep need for such a theory’ (Robson 1976, p. 7). In 1988 Robert Goodin, calling for an analysis of the ethical foundations of the welfare state, wrote: ‘ “the welfare state” is not itself a single, unified, unambiguous entity. It is instead a ragbag of programs, only vaguely related and only imperfectly integtrated’ (Goodin 1988, p. 3). In 1993 Frederic Reamer wrote: ‘By and large, little recognition has been given to the philosophical roots and assumptions embedded in contemporary statements about the role of government in social welfare’ (Reamer 1993, p. 2). Part III (on ethics) of Hegel’s book, Philosophy of Right, consists of three chapters that cover the family, civil society (market), and the state. Keynes expressed his underlying ideas of the refutation of classical economics in General Theory in two ways: first, to reject the Benthamite utilitarian calculation of the consequences of action in an uncertain future, and second, to reject Say’s law that supply always creates its own demand. See Keynes ([1937] 1973). For a survey of feminist ethics, see Brennan (1999). For an anthology of feminist ethics as the ethics of care, see Held (1995). It is interesting to see the changing interests in citizenship revealed in the T.H. Marshall Memorial Lectures in the 1980s and the 1990s. See Bulmer and Rees (1996). William Galston classifies ‘liberal virtues,’ needed to sustain the liberal state, into general, social, economic, and political virtues. See Galston (1991).

7. 7.1

The economy and the morality of social security reform WHAT IS THE CRISIS OF THE WELFARE STATE?

Changing Fundamental Conditions After World War II the developed capitalist countries enjoyed economic growth and full employment and, under these favorable economic conditions, expanded the social security system. In the 1970s, however, they entered a stage of reduced economic growth rate, triggered by two oil crises. From this time the welfare state has been under a serious threat and subject to challenge on financial and ideological fronts, and its reform is currently a matter of great urgency on political agendas. Since the relationship between the values and institutions of the welfare state, formulated by Esping-Andersen’s typology of welfare regimes, is influenced by actual economic, political, and social circumstances, rapid changes in these conditions at the turn of the twenty-first century seem to have entailed modifications in this relationship. It is often pointed out that three trends have changed the fundamental conditions of economic societies in the early twenty-first century: (1) the globalization of the economy, (2) the revolution of information technology, and (3) the declining and ageing population. Let us consider the crisis of the welfare state against this background. Since the outset of the 1990s, owing to the collapse of socialist regimes in the former USSR and its allies, the globalization of the economy has promoted the dominance of capitalist values and ideologies worldwide. Countries have plunged into international economic competition under more or less uniform standards, and the transactions of technology, capital, commodities, and finance have rapidly grown across national borders. Globalization demands the universal dissemination not only of market principles but also of the democratic principles of human rights. Underlying these movements has been the rise of libertarian or right-wing economic and political ideologies. What is the impact of globalization on social security, another system besides capitalism and democracy inherent in the contemporary welfare state? Social security is a nonmarket system with the 271

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crucial role of correcting and supplementing market principles to secure basic living standards for people. When the economic efficiency and competitiveness of a country are tested in an international forum, economic globalization may impose heavy constraints on social policy. Retrenchment and privatization, aimed at a small government, are more or less inevitable even for welfare services that have been sanctuaries from the market. The revolution of information technology, a new wheel of economic development, is expected to create an upward swing in economic activity. Although a series of technological innovations have occurred in particular electronic industries, we have seen their application in all industries and households through the use of personal computers, the Internet, cellular telephones, and so forth. Improvements in information technology have been contributing to the formation of knowledge-intensive economic societies and have polarized the class that is able to adapt to them and the class that cannot, creating the so-called digital divide. The consequence has been an increasing disparity between the rich and the poor. Finally, the ageing population in most advanced countries has produced new phenomena, such as a decline in the fertility rate, an increase in life expectancy, and a change in the population structure. Clearly, these events will lead to a diminishing population in the near future. Their influence on economic growth and the social security system is obvious. Although an increase in older people raises the demand for pensions, health care, and long-term care, the funding to address these needs through social security becomes more difficult to access because of the declining working population that economically supports the elderly. Moreover, the traditional family structure is decaying with the emergence of new lifestyles, such as the participation of women in the labor market, smaller families, the rising divorce rate, the declining marriage rate, and a diminished capacity to care for children and the elderly at home. These changes have created the need for new types of welfare services as a social safety net. Perceiving the Crisis and the Viewpoint of Reform What is meant by the crisis of the welfare state against the background of these changing circumstances? Indeed, some changes in fundamental conditions would entail increasing the burdens on the welfare state. And undoubtedly the ensuing bankruptcy of social security finances in the face of a globalizing economy is a clear indication that the welfare state is in crisis. However, the mere reduction of its financial burden would not be the answer. Since the state’s provision of welfare services is a partial proxy for markets and families, the crisis of the welfare state means that the totality of the ‘market, family, and state’ would be unable to provide for the well-being

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of the citizenry under the new circumstances. The challenge is to ensure consistency within the trinity and not limit the burden to the state alone. In considering the origin of, and measures for dealing with, the crisis, we must look at the relationship between the economy and morality with respect to the whole welfare regime. The restructuring of the welfare state would thus require a basic reorganization of the welfare regime consisting of the ‘market, family, and state’ in response to the challenges of the economy, population, and ideology. By basic reorganization I mean not simply balancing the budget of social security but examining the system in the context of the relationship between the economy and morality or between capitalism and democracy. Thus whereas the preceding chapter discussed the ethics of social security, we will now focus on the ethical implications of controversial practical issues confronting the social security system. It is hoped that this will help expand and deepen the ethics of social security. First, we must deal with the ageing population, the most pressing challenge to the social security system (section 7.2). Next, we will address the reforms proposed for each component of the welfare regime (that is, the ‘market, family, and state’ respectively) and explore their ethical implications (sections 7.3, 7.4, and 7.5). Finally, I will introduce the idea of ‘positive social security’ as a coordinating principle of social security reform (section 7.6). This concept develops the ethics of virtue or excellence beyond the ethics of right or justice that has so far been acknowledged as the foundation of social security.

7.2

THE ESSENCE OF LOW FERTILITY AND THE AGEING POPULATION

The Implications of the New Demographic Phenomena The fact that the advanced countries in the contemporary world are facing a declining and ageing population is the most compelling reason for reforming the welfare state. A pessimistic view of this situation might be based on the partial observation and traditional thinking of man and society. But it is necessary to interpret what the new demographic phenomena imply from a broad perspective of man’s well-being and to understand what we are asked to do. Demographic phenomena, such as low fertility and ageing, are concerned with human subjectivity and produced endogenously by our own behavior; they are the results of economic development and the concomitant achievement of citizenship in the long run. Therefore we have to con-

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sider low fertility and ageing as they relate to the pursuit of ‘civil, political, and social rights’ in the process of economic development. From this point of view, low fertility is the result of economic development in two ways. First, people have enjoyed a rise in living standards by reducing the number of children per family. Through improvements in medicine and public health, as well as the spread of contraception, there has been a shift from a pattern of high fertility and high mortality to one of low fertility and low mortality. In the modern period, Malthusianism long dominated the thinking of demographic and economic theory: overpopulation depressed living standards and produced poverty. The reality of economic development, however, has swept away this widespread view, and modern economic growth has even been defined as a long-term rise in per capita income based on advanced technology accompanied by population growth (Kuznets, 1966). In developed countries, however, the declining birthrate has reached a level at which it is no longer possible to replace the population. Although an increase in the standard of living through declining fertility would nullify the definition of modern economic growth, it has emerged as an important result of economic growth. Second, low fertility has been caused largely by increased opportunities for women. Whereas the traditional gender system limited the occupation of most women to unpaid housework, they are now able to obtain a higher education, work with professional knowledge and skill, and participate in social activities in the same way as men. In the process of long-term economic development, the household economy as a production-cum-consumption unit has disintegrated; various services, such as labor, schooling, cooking, housekeeping, child care, and elderly care have been gradually externalized from household to market. Now we see the externalization of women’s labor as such. On the other hand, this tendency has had the grave consequence of declining fertility as more women remain single or marry later in life. This is because the economic value of women’s labor in the marketplace has risen, thereby increasing the opportunity cost of other alternatives for women, including marriage. Although this tendency is sometimes regarded as a change in outlook on family and marriage, it is untrue that the latter has functioned as an independent variable. Economic development has expanded opportunities, to which women have responded to achieve a marked improvement in their well-being; as a result, the old outlook has broken down. Declining fertility is an immediate cost of the increasing equality of both sexes. Basically, the increased ageing population is the result of an increase in life expectancy due to the progress of medical technology and pharmaceuticals, which is subsumed under economic development. It is remarkable that people can live much longer and work in good health. Never before in

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history has man been confronted with the question of how he should live at the age of 80 or 90. On the other hand, the ageing population requires many more pensions and higher medical costs; this is the immediate price of increased living standards and expanded life opportunities. Then, why should we be concerned about low fertility and ageing? Besides the financial questions of social security, there are two more basic issues: (1) how the potential outcomes of increased opportunities due to economic development should be reaped in effective ways, and (2) how low fertility and ageing should be evaluated and managed. We must be concerned about the causes as well as the effects of these demographic phenomena. Basic Issues (1): Gender and Ageism How should we manage the outcomes of increased life opportunities? The present thinking seems to center on the adverse financial effects of low fertility and ageing on social security. But it is important to recognize that what is intrinsically desirable has produced unfavorable results because social institutions are not equipped to take advantage of new situations. If the basic issue is the gap between demographic trends and social institutions, it follows that we must change the institutions so that society can take seriously the irreversible shift toward expanding life opportunities and reap the benefits of economic development and the concomitant achievement of citizenship. The traditional notions and conventions to be overcome in this context are gender and ageism. We need those institutions and policies that support the equal social participation of both sexes, on the one hand, and the young and aged populations, on the other. The preceding chapter dealt with gender issues that already occupy an important position in the ethics of the welfare state. Here we are concerned with the issues of ageism, which parallel the gender issues in importance. Ageism means negative as well as positive prejudice or discrimination against certain age groups (Palmore 1990). It is said that the American gerontologist, Robert N. Butler, coined the term in 1968 to attack social discrimination against people because they are old (Butler 1989). Age, like race and sex, is not morally relevant. It is immoral to make different social arrangements for individuals based on their age. Ageism or discrimination of the elderly works negatively and positively. It is positive ageism to exempt the elderly from public duties and burdens because they are physically, mentally, or socially weak; it is negative ageism to exclude older people who are willing and able to work by forced retirement from jobs and other positions. Whereas ageism is unjust because it denies equal opportunities, it imposes dual burdens on the social security system: it excludes older people

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from society through negative ageism yet provides them with social security through positive ageism. Social security embodies dual forms of ageism. Although positive ageism might start with respect and compassion for the elderly, it is inappropriate in that virtue or goodwill within the family is extended to public institutions. Negative ageism is sometimes derived from market forces and is inappropriate as a basis for public institutions. In considering the response of social institutions to ageing, we should not limit ourselves to discrimination against the elderly but interpret the term broadly to understand the wider systematic discrimination in society with regard to age. Our society uses age to distinguish between social roles in organizing social life. Younger people are pursuing an education, middleaged people are absorbed in work, and older people indulge in leisure after retirement. But this rigid distinction of social roles by age cannot react to the diversification of the life course, impeding the flexibility and vitality of society. Given the rapid growth of the ageing population, the general concern is with burgeoning pensions, health care, and long-term care. But we must not forget that healthy older people, although increasing in number and proportion, are barred from numerous social activities. There is no reason why they should be excluded from work and education. Nor is there any reason why younger people should be excluded from work and leisure. Middle-aged people are exclusively engaged in work, but they should also be involved in education and leisure. In short, all generations should be free to participate in community life. Riley and Riley ingeniously compare an age-differentiated structure with an age-integrated structure of society (Riley and Riley 1994). Instead of an age-differentiated society in which people move into life’s various stages based on their age, an age-integrated or ageless society can accommodate the needs, interests, and abilities of people of all ages. A combination of lifelong education, lifelong work, and lifelong leisure is desirable. Work should not be confined to wage labor employed by business firms. It is necessary to be independent of a business-led society in which education serves the purpose of the market and leisure is forced by expediency of firms. Gerontology also plays a role in the delayed social response to ageing. Although medical science has extended human life, it has not necessarily extended healthy life. To attain the compatibility of old age and health and to increase the quality of life of the elderly, we must promote large-scale studies of the aged through science and technology. Here is an important domain of excellence. The joint efforts of social institutions, science and technology are required for a society of ‘active ageing.’ New social arrangements for women and the elderly are intended to respond to the increasing opportunities of life, not just to solve the crisis of the social security budget. The underlying idea is that social institutions

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develop a new perspective of and an overall positive response to the new circumstances. Of course, such a response would relieve the budget crisis temporarily by reducing the immediate costs of these increased opportunities for women and the ageing. But it is inevitable that the benefits will be costly over the long term, and it is the task of social security reforms in a narrow sense to cope with them. Basic Issues (2): Population and Democracy There is a more basic issue relating to the new demographic trend: how should we evaluate the declining population as such from a social point of view? In the sense described above, the declining and ageing populations are an immediate outcome of expanding opportunities in life. One aspect of the problem is population size as the basis of a stable society. Needless to say, to have or not have children is a personal decision. But there are consequences either way. Since society is a cooperative system that is maintained through generations, family and population are public issues with regard to the relationship between individuals and society. According to Rawls, since the family is part of the basic structure of society, the concept of justice applies to the family as an institution. He regards population size as a matter of intergenerational justice, because one of the family’s main roles is to perpetuate the species so that society can endure and inherit culture and morality through education from one generation to the next (Rawls 1999b). Today, there is an inconsistency between the rise in the standard of living through a reduction in the number of children per household and the satisfaction of the social role of family, or between the improved status of women and the satisfaction of the social role of family. But insofar as a married couple wishes to have at least two children, as opinion surveys indicate, it is possible that society can maintain a stable population instead of losing population. This is important. As indicated in the preceding chapter, the reform of the welfare state in terms of gender should consist of improved working conditions for women and an expanded family policy. It is possible to implement both of these measures. Although the compatibility of women’s work and child care is a focus of social policy in the face of the declining population, its grounding is philosophical. In the process of changing the fundamental conditions of society due to economic development, low fertility is the outcome of individual choice. But the social outcome of a decreasing population has to do with the survival of society. If so, assuming a democratic society, people must consider this public issue as their own problem and agree on the requisite public policy. Sixty years ago Gunnar Myrdal warned against the danger of declining

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population; based on the Swedish experience, determining and taking measures to cope with the economic and social impacts of declining population was a task of great urgency in a democratic society (Myrdal 1940). In light of the decline in marriage and fertility in Sweden in the 1930s, Myrdal anticipated dire consequences for the economy and the family; he maintained that a stable population should be the practical goal of society. His idea of an appropriate public policy in a democracy was not to demand that people have more children for the sake of the state. Rather, government should promote a social environment in which people could satisfy their natural desire for a happy family life based on the recognition of their own interests through sufficient knowledge and education. For this purpose, he proposed to provide all families with children with child care, education, and housing through taxation. This proposal, which shifted the emphasis of social policy from the elderly to younger people, from cure to prevention, and from public assistance to universal security, was characterized as a ‘social human investment’ to improve the quality of future generations. This notion of linking population policy and child welfare occupied an important position in the Swedish welfare state in the 1930s. Apart from a judgment of whether this policy was successful, the Swedish fertility rate, which had been declining since the 1880s, increased from the 1930s and remained above the death rate until the mid-1940s (Bengtsson and Ohlsson 1994, p. 18). After World War II, the fertility rate began to decline once again. Thus, always playing a pioneering role in the laboratory of the welfare state, Sweden has continued to be a leader of social policy reform in the developed countries. Preview Triggered by the declining and ageing population, various opinions have been presented on the reform of the social security system. The following sections illustrate the ethical implications of typical reform proposals focusing on the trinity of a welfare regime, that is, ‘market, family, and state.’ First, there is a strong call to return the responsibility for social security from the state to markets. Second, it is claimed that older people as the beneficiaries of social security should bear a greater burden and responsibility within the family. Third, it is argued that the state should spend more revenue from taxes, instead of depending on social insurance schemes, to support the social security system. These opinions appear to indicate that the costs of social security are rotated among markets, the family, and the state without governing principles. I propose to consider these views from the systematic standpoint of ethics. Lastly, this text presents the concept of a ‘positive social security’ to integrate the reform proposals. This relates to

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what is called ‘the third way’ in the current politics of the US and Europe. But my view, which is based on the ethics of virtue and excellence, holds that social security should recognize the absence of human excellence due to the lack of basic needs and that it should strive to achieve excellence by improving human capabilities. Positive social security is not passive protection against risks but an adventurous challenge to achieve excellence.

7.3

THE MARKET: INDIVIDUAL VERSUS SOCIAL RESPONSIBILITY

The Concept of Responsibility From a macroscopic perspective, social security consists of the demarketization and de-familization of welfare. From a microscopic perspective, it means that the provision of welfare based on ‘individual responsibility’ through individual activities in the market and the family is partly externalized to the state. Thus the state is entrusted with the ‘social responsibility’ of providing people with welfare services. In this context, social security necessarily involves the question, Why has individual responsibility become social responsibility? Since it is common to emphasize individual responsibility, self-help, and self-reliance in the current debate on welfare reform, we will deal with this question first. Does the concept of individual responsibility have a definite context? It is generally thought that a reference to individual responsibility means a critique and retrenchment of social security. This is like defining social responsibility or social solidarity simplistically as a defense of social security. This issue relates to where the boundaries between individual and social responsibility should be drawn from a moral point of view. Although the concept of responsibility is not used in economics, what it signifies does exist in the economic world. To clarify the logic of markets, it is necessary to see how an equivalent of responsibility is treated in economics. In Chapter 4, section 4.1, which explored the moral features of competitive markets, we saw that the key is the concept of externality. In a market system, the positive or negative effects of individual economic behavior on other people are settled in principle by the transaction of money. This is the premise of quid pro quo. The direct effects of individual behavior that does not involve the medium of money in the market represent a lapse from this principle and are called ‘externality.’ According to the economic theory of externality, externalized benefits or costs should be internalized by legal enforcement or negotiations between the parties concerned to achieve economic efficiency. Under this approach, economic logic

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is applied to nonmarket transactions to achieve the universality of markets. The assumption of the nonexistence of externality or of the feasibility of internalizing externality means that there is no externality left in an intentional or accidental form. The notion of responsibility is a case for internalization in that, assuming a certain institutional model (for example, a market system), it ascribes benefits or costs occurring between individuals to those who are causally responsible for the phenomena. Responsibility is the status that will realize norms embodied in the institutions. A market system with a remarkable universalizing capacity requires that all relationships between individuals should be internalized as market transactions based on economic evaluation. A deviation from this norm is called ‘externality,’ a case of market failure. According to welfare economics, public policy is required to correct market failures. As Ronald Coase indicated, however, the notion of internalization in economics depends on the criterion of efficiency and does not necessarily attribute responsibility to the causally concerned parties (Coase [1960] 1988). For internalization logically includes the case where a victim of negative externality would compensate causal actors for stopping the behavior in question, although a different direction of internalization would entail different income distribution. To clarify the concept of responsibility, one must make explicit what kind of institution is assumed. A reference to an indefinite concept of responsibility is useless. Although there are various definitions of responsibility, we need no definition other than the distinction between retrospective and prospective responsibility (Duff 1998). The former judges that a particular person is responsible retrospectively or after the event for what he did and that he is worthy of blame or praise. The latter judges that a particular person should comply with norms prospectively or before the event in light of his particular duties according to his role or status. In both cases, the concept of responsibility must presume certain basic moral principles. Responsibility in the moral and legal sense means the ability to respond to and account for an event. According to Kant: ‘A person is a subject whose actions can be imputed to him. Moral personality is therefore nothing other than the freedom of a rational being under moral laws’ (Kant [1797] 1996, p. 16). Thus, those persons to whom responsibility can be imputed are defined as autonomous persons. Responsibility is a legal as well as a moral concept and makes a normative imputation that people should be responsible for an event prospectively and retrospectively. However, responsibility is merely a derived and applied concept depending on moral principles. In our terminology, responsibility is one of the virtues that is subject to the concept of right. It is in this sense that responsibility cannot be considered independently of justice and equality (Ripstein 1999). The text below

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explores responsibility based on the concept of justice derived from Kant’s assumption of moral persons. Responsibility in this context is the development of moral luck and bad luck; recall that Chapter 3, section 3.2 argued that moral responsibility is incompatible with luck. Principles of Justice and the Externalization and Internalization of Responsibility As defined above, responsibility is the ability of people to function as moral persons and presupposes that they have the power of good and right and freedom of choice. The conception and institutions of justice play an important part in the realization of moral persons. Here it is only necessary to recall the major points in Rawls’s principles of justice from the viewpoint of responsibility. If we use the institutions of capitalism and democracy as a benchmark, it is necessary to embed security for social rights – in addition to civil and political rights – in the basic structure of society for justice to be realized. Security for social rights is achieved by social policies that ensure fair equality of opportunities and raise the position of the worst-off. In theoretical terms, these policies would neutralize the effects of social and natural contingencies on the people’s welfare on the basis of Rawls’s principles of justice (fair equality of opportunities, a safety net, and the difference principle). The neutralization of social contingencies requires institutions to ensure fair equality of opportunities, and that of natural contingencies requires institutions to ensure a safety net. This implies that man has responsibility only for the events that he can manage because the outcomes of good luck and bad luck are not morally approved. Thus the talents and abilities of individuals and their consequences include the part that is assumed to be their own responsibility and the part that is not. For the former, the valuation of their merits is allowed according to market principles and the consequences are imputed and internalized to them. For the latter, social redistribution is made to redress inequality of talents due to bad luck, and responsibility is externalized from individuals to society. The principles of justice modify the market’s system of valuation and rewards. They direct that the consequences of human abilities and efforts should be partially imputed to the individuals themselves and partially externalized. Assuming that a market system is the norm, the economic theory of externality advocates an institutional device for internalizing externalities that spill over from market transactions into transactions between the individuals concerned. In contrast, the moral theory of justice maintains that consequences that should be externalized from contingent individuals are to be internalized again into society in the form of collective

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responsibility. This is because the principles of justice have been agreed on by all individuals under a fair condition of social contract. From this proposition the notion of social pooling of natural talents is derived. To explain convincingly the relationship between individual and social responsibility in a social security system, one must define the institutional concept of insurance as the pooling of risks to redress the contingencies of natural talents. It is often said that individual responsibility means taking care of oneself. But, as noted above, the concept of responsibility has no meaning unless it presupposes moral principles or the institutions that embody them. According to libertarian thought and the market institutions that implement it, people should assume risks based on the valuation of their performance by the market, and there are people who can take care of themselves and people who cannot. Individual responsibility applies only to those who can take care of themselves; for those who cannot care for themselves, social responsibility is regarded as a necessary evil. Social responsibility in libertarian thought is negative and exceptional in that those who cannot fulfill their own responsibility are taken care of. In contrast, in a welfare state based on the principles of justice, society accepts risks through the collective scheme of insurance, in which all people participate by paying appropriate premiums to provide for their welfare. A formal dichotomy between individual and social responsibility does not hold here, because it is believed that individual responsibility is best maintained by the scheme of social responsibility for pooling risks collectively (Goodin 1998, p. 167). Social responsibility in this case is positive in the sense that it is carried out voluntarily by all individuals. In Chapter 2, section 2.5, I argued that the social security system is not altruistic but based on self-love. In terms of the concept of responsibility, the social security system is an infrastructure that enables all people to fulfill their individual responsibility to take care of themselves. Without this system, only a small number of people can afford to cope with risk by their own means and fulfill their individual responsibilities. The role of the social security system is to externalize individual responsibility and to establish the notion of social responsibility in the sense that people should not have to cope with risk on their own, on the one hand, and to internalize, in turn, social responsibility to all people in the sense that they should participate in the collective scheme of pooling risks, on the other. Social security is more efficient in fulfilling self-interest and individual responsibility than any systems of self-protection against risks. Earlier, we considered the moral question of whether the outcome of market valuation should accrue to individual responsibility, presuming the market system as a benchmark. The answer was that the neutralization of social and natural contingencies from the viewpoint of justice should be

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a matter of social responsibility and therefore the task of social policy. Although I pointed out that the concept of responsibility is not independent of moral principles and institutions, we must now look at the relationship between responsibility and institutions as such. This means examining the limits of the market approach and referring specifically to Rawls’s distinction between welfare-state capitalism and property-owning democracy. When a market economy involves a labor market in addition to a product market, business firms customarily employ workers. When people were selfemployed in agriculture or the handicrafts and only their products were sold, they could work until they died. In modern times, when firms employ people, forced retirement and layoffs become crucial to their work life. Retirement is an invention of the business firm (Hannah 1986). Even if individuals are willing to work, the system of retirement or dismissal makes it necessary to offer a social safety net of pensions and unemployment benefits. As the Beveridge Plan emphasized, the prerequisite of social security is full employment. A current political and moral issue is the abolition or postponement of forced retirement; such ageism restricts the scope of individual autonomy and responsibility. If social security is to embody the principles of justice, it should not simply accept the outcome of markets passively, providing a safety net to those who are excluded from the market, but instead reform the preconditions of social security as such. Reform of the retirement system to ensure equal social participation regardless of age and sex is a prerequisite to the market approach The system of social security does not allow us simply to abandon individual accountability and to shift responsibility for personal hardships to the state. If the social security system is to succeed, individuals as citizens must take responsibility for internalizing welfare that was once externalized – that is, de-marketed and de-familized welfare. This is the notion of social responsibility based on autonomous individuals as well as the notion of individual responsibility based on a just society. The precondition for both individual and social responsibility is the provision of fair equality of opportunities by markets and businesses. The libertarian call for individual responsibility leaves all elements of well-being to market evaluation, regarding a market system as given. In contrast, social responsibility based on the principles of justice demands the internalization of the benefits and burdens of welfare that were once externalized on the assumption of fair equality of opportunity. The process of internalization involves the redistribution of income and wealth to satisfy Rawls’s difference principle. A spiritual aspect of the crisis of the welfare state is that people do not accept social responsibility. Although they easily demand benefits, they are unwilling to assume burdens. This is similar to the so-called tragedy of the commons, which means that the

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environment will deteriorate whenever people are permitted to use scarce resources in common (Hardin 1968). The solution of this problem requires internalizing the responsibility for the sustainability of welfare resources, which is normally not an individual concern, to a group. The Merits and Demerits of Arguments for Markets We next turn to the arguments in favor of markets, particularly from the standpoint of individual responsibility. First, we must recognize the bias of pro-market arguments concerning the relationship between markets and social security. In the reform of social security, we often hear that the state should leave the work of welfare services to markets to retrench the costs of the welfare state. The growing globalization of the world economy and the libertarian ideology for market economies support this view and oppose the funding of government activities such as social security. Although there is room for introducing market factors into the social security system, markets cannot ensure equal satisfaction of basic human needs. The case for a market economy has not yet recognized that the consequences of markets have been a perennial threat to social stability and coordination for centuries. Comparative studies of economic growth have found that even in developed countries with high per capita income the saving ratio (the proportion of savings in GDP) is not any higher than it is in less developed countries. This means that as income increases, human desires are not satisfied but exploited; further, increased well-being gradually needs not only private consumption but also social or public consumption and is actually accommodated in developed countries. Social consumption is the collective consumption of public goods, merit goods, and excellence goods through a public strategy. Social security is mainly concerned with the provision of merit goods to meet the basic human needs. Adherents of markets are apt to regard consumption other than the private consumption available in markets as an unreasonable imposition on individuals. For instance, the ratio of the sum of taxes and social insurance premiums to GDP is sometimes understood as the degree of national burden, meaning that an increase in the ratio is undesirable. However, this ratio indicates the proportion of social expenditures (consumption and investment) in GDP, not burdens that do not benefit people. Compared with the desire for private consumption and the social desire for basic needs, it is prejudicial to give priority to preferences for private consumption and regard it as a manifestation of individual liberty. Furthermore, there is no empirical evidence to support claims that increased welfare state expenditures impair economic growth (Atkinson 1999).

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In the process of economic growth in market economies, the industrial structure necessarily changes because technical innovations and new products on the supply side and new desires on the demand side entail both growing and declining industries. For new leading industries to expand, it is necessary to shift economic resources from existing industries including declining ones to the new industries. Economic growth depends on the traction of leading industries and the transformation capacity of the economy. The increasing proportion of the cost of social security in the GDP means that the social services in social security have the capacity to become growing industries. Nevertheless, because these services are controlled by the social security system, there are institutional and psychological constraints on their expansion. In market economies, any good or any service, however undesirable it may be, can flourish based on commercialism if it satisfies two conditions: (1) it must be accompanied by effective demand, and (2) it must be supplied efficiently. However, because under the public system for merit goods benefits and burdens are separated, the demand for services is not directly accompanied by the burden of costs and causes moral hazards and wasteful social consumption. Moreover, public regulation offers little incentive for efficient competition and innovation. Therefore, social security services remain merely potentially growing industries. Their inefficiency and budget deficits receive so much criticism that imposing constraints on their growth is generally believed to be the right approach. To ensure compatibility between economic growth and social stability, it is essential to allocate resources to social security services and to make them cost-effective. From this viewpoint, the emphasis on program responsibility and competition is sufficiently meaningful. The merits of the pro-market argument lie in the enforcement of effective demand and efficient allocation of resources in the management of social security. The problem is neither simply to reduce the scale of the welfare state nor to return to a market economy, but to balance justice and incentives in social security. The traditional view was the dichotomy whereby the merit principle based on individual responsibility applied to markets and the need principle based on social responsibility applied to state action. The two principles remained unrelated and their juxtaposition was called a mixed economy. According to this view, social security reform would amount to retrenchment of the state and expansion of the market. But to establish the conditions susceptible to the fulfillment of individual responsibility by the collectivization of risk, on the one hand, and to restrain moral hazards and prevent a free ride prompted by the collectivization of risk, on the other, it is necessary to introduce market factors as a means to internalize individual responsibility in the system of social security. This task is based on a new perspective on social security reform.

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Appraisal of the Market Approach At least three approaches to social security reform favor the market; they aim to marketize social security in different forms. The first approach assumes that people should earn income in the labor market instead of depending on welfare services of the state, an idea expressed by the slogan ‘welfare to workfare.’ It aims at a solution to welfare dependency. Distinguishing between the poverty of those who cannot work and those who can, this scheme promotes both disincentives for dependency and incentives to work. In the second approach, the idea of privatization holds that the methods of welfare delivery and the financial system to pay for pensions, medicine, and care should be shifted from the public sector to the private sector. This strategy advocates transferring as many government services as possible to the private sector. Finally, a quasi-market or internal market introduces market incentives to the management of social security by admitting relying on private firms and nonprofit organizations but retaining some public involvement. To examine these approaches, we need to refer to several concepts common to economics and ethics, such as merit, incentives, and efficiency in addition to responsibility. Merit is similar to responsibility in that both are derivative notions that depend on certain presupposed norms and institutions. Moreover, they share the function of imputing positive and negative valuation to individuals. When retrospective responsibility imputes praise and reward, on the one hand, and blame and punishment, on the other, to individuals on the basis of causation, the nature and acts of persons causing these outcomes are their merits or demerits. Some mechanism is necessary for people to develop merits and avoid demerits, and that mechanism is incentive. The basic task here is to define the content of merits normatively and to design a system for rewarding merits. The notion of responsibility is a moral incentive system that depends on a superior power of morality. It is well known that a market mechanism is a pecuniary incentive system. What can be an incentive in the field of social security? Let us consider the three approaches to social security reform from this point of view. (1) From welfare to workfare The current approach of ‘from workfare to welfare’ was pioneered in the English Poor Law Report and the Poor Law Amendment Act of 1834, culminating in a wave of reforms of the Elizabeth Poor Law of 1601. These reforms were based on the notion that the poor who are able should work for wages and that they should be less eligible for public relief (Checkland and Checkland 1974). As a result of these reforms, the Act of 1834 is regarded

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as the cornerstone of British laissez-faire capitalism in the nineteenth century. Even today, public relief to the poor is typically available in a liberal welfare regime and based on the philosophy of libertarianism. A system of public relief financed by taxes depends on a means test and makes beneficiaries feel the stigma of their status. This emphasis on individual responsibility as the cause of poverty seeks to reduce dependence on public relief and incorporates the demerits of dependence into an incentive system. This approach is paradoxical, however, because even if the able-bodied could earn their own livings (assuming full employment without involuntary unemployment), it puts people who truly need help in a pitiable situation. Such treatment of the beneficiaries of relief contradicts the right to justice and self-respect. The principles of justice hold that what may appear to be an individual’s demerit is actually the result of social and natural contingencies beyond his responsibility. (A related problem is the relationship between social insurance and public relief, discussed in section 7.5.) Clearly, individual merits and demerits cannot be determined until adjustments are made in view of social and natural contingencies. As we have seen, the concept of self-respect has a special place in Rawls’s theory, which defines it as the most important of the primary goods: without it, a life is not worth living. The feeling of lost or injured selfrespect is ‘shame’ (Rawls 1999a, pp. 388–91). Chapter 3, section 3.6 argued that by achieving excellence as a public good, a person not only can regard herself as worthy of self-respect but also win praise from others. Whereas self-respect is acquired through the achievement of excellence, shame is caused by the lack of excellence. It is a contradiction that although social security is warranted because the lack of basic needs injures self-respect, social security causes shame by procedures such as means testing. The system of workfare (work  welfare), which has rapidly developed as a part of social security reform since the 1970s in liberal welfare regimes such as the US, Britain, and Canada, has gained a stronghold against the traditional view of the welfare state represented by social democratic welfare regimes. It is even regarded as a type of social security system per se rather than just a component of the system. According to Jamie Peck, workfarism is defined in terms of three dimensions (2001, pp. 12–14). First, it is a mandatory relief program, in contrast to the universalistic entitlement-based system of the welfare state. Second, its institutional purpose is to encourage participation in the labor market and to deter dependence on welfare. And third, it does not passively accept exclusion from the labor market but actively encourages inclusion in it. Workfarism has not only passive residualist elements as revealed in public relief, but also positive elements. It promotes labor market participation to open up a new vista for the future. It provides welfare services

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during temporary absenses from the labor market on the condition that the recipient will return to work. Finally, it allows diverse voluntary programs according to region instead of requiring a centralized uniform program. These features of workfarism suggest room for innovation and revitalization of life through social policies. In terms of Figure 6.2 in Chapter 6, workfare is to be understood not as the means to a regime of ‘market and efficiency’ but to one of ‘community and excellence.’ In this way, workfare can be used to defeat the bureaucratic rigidity of the regime of ‘the state and justice.’ Recently a radical idea of a ‘basic income’ has been proposed, which is the opposite of workfare. Whereas the plan of workfare aims primarily to integrate work and welfare, both of which are separated under the social assistance program, basic income proposals ensure an unconditional equal income to all, separating work and income now on a universalistic basis. According to Philippe Van Parijs, one of the proponents of the plan, a basic income is an income paid by the government to each full member of society (1) even if she is not willing to work, (2) irrespective of her being rich or poor, (3) whoever she lives with, and (4) no matter which part of the country she lives in (Van Parijs 1995, p. 35). Just as the standard socialdemocratic conception of the welfare state is based on the separation of the benefits and burdens of welfare services, so too is the idea of a basic income based on the separation of work and income. However, a question is raised whether a basic income system is workable because under this system people get something for nothing even before, not after, their falling into risk. Although basic income proposals, derived from a pursuit of real freedom, are interpreted as an egalitarian critique of workfare, they will not be understood seriously in the context of reforming the welfare state unless there is room for introducing an effective system for promoting incentives and virtues. One can locate a plan of a ‘participation income’ between the ideas of workfare and a basic income. According to A.B. Atkinson, its proponent, a participation income is paid by the government to everyone performing any of a range of useful social contributions outside the paid labor market (Atkinson 1996). It is remarkable in rejecting both a means test included in public relief and mandatory enrollment in the labor market in the workfare program; thus it contributes to realizing the value of social participation based on efficiency and reciprocity. (2) Privatization The concept of privatization is not as simple as is supposed. It is variously used as an ideological concept, an economic theory, and a political practice (Starr 1989). Privatization in social security does not merely refer to the

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transfer of government services to the private sector, because there are different forms of government involvement – that is, public regulation, public funding, and public delivery. The real issue is what kind of involvement government will have in particular services. When particular services are included in the scheme of social security, the reason for their inclusion is primarily a matter of distributive justice; thus evaluation of the government’s redistributive function is an immediate issue. The libertarian view maintains that redistribution is a threat to liberty, and the social security system should be downsized. However, consideration of allocative efficiency concerning information asymmetry and supervision of service quality is important in accounting for differences in the form of government involvement (Blank 2000). According to economic theory, when these information problems exist, it is desirable that services be provided by the government or a nonprofit organization. From the viewpoint of efficiency, it is due to market failure that particular services are left to the government, but it is due to government failure that privatization becomes a political issue. Even if government involvement is necessary at some levels of regulation, funding, and delivery, it is possible that government services are excessive due to the inefficiency of bureaucratic management. In the public sector can be found the regimentation and rigidity of institutions, stagnation of technological innovation, postponement of decision-making, the lack of incentives for efficiency, and so on. Therefore, in the confrontation between the public and private sectors an all-or-nothing solution is inappropriate, and a mix of private and public is required. Which on balance predominates in any given case is an open question, and we have to decide on a case-by-case basis. In this context two points are important. First, standards to ensure the quality of services must be established and dissemination of information must be encouraged to promote competition and efficiency among service providers. Second, to achieve compatibility of allocative efficiency and distributive justice, it is necessary to distinguish between services to be located within and outside the social security system and to design a scheme for private insurance outside the system. (3) Incentive system Efficiency is necessary to social security, but it cannot be superior to justice. Efficiency, a kind of instrumental rationality, means the maximum achievement of certain ends under certain constraints. The aim of social security is to satisfy basic human needs that are required for individual dignity and self-respect; in so doing, it is constrained by its budget and resources. Without the constraints of budget and resources, social security cannot

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attain efficiency. But efficiency does not mean retrenchment of the budget, but that some plan must be devised so that economic constraints work as an incentive for all agents, including the beneficiaries and providers of services. In other words, although the relationship between benefits and burdens was once separated on the individual level by the introduction of social security, we need a scheme by which they would be combined again effectively. Referring to Kant, let us consider philosophically what is meant by combining ‘market, incentive, and efficiency’ with ‘the state, norm, and justice.’ The core of Kant’s critique of pure reason is represented by the question of whether synthetic a priori judgments are possible. Synthetic judgments are contrasted with analytic judgments. An ‘analytic judgment’ merely explicates what is already embedded in the concept of a subject; it is a priori. By contrast, a ‘synthetic judgment’ combines a predicate not involved in the concept of a subject with a subject; it is invoked by intuition and ascertained by experience and thus broadens knowledge. Reflecting on its possibility, Kant laid the foundation for synthetic a priori knowledge by the transcendental self-consciousness of knowing subjects. This means including a priori knowledge as well as a posteriori knowledge in a set of synthetic judgments. An application of this idea to the moral world was Kant’s categorical imperative. The latter, being a universal moral law, is a synthetic a priori judgment. How it is possible depends on the concept of the autonomy of will; the categorical imperative is established by the will regarding itself as a universal legislator. The reason why the categorical imperative is a synthetic judgment is that human beings as autonomous entities belong to the world of intelligence, while as sensuous entities they belong to the world of sensibility; thus they give a synthetic judgment in morality as if it were a cognitive judgment on the relationship between subjects and predicates. The proposition that competitive market equilibrium is Pareto-optimal, the central proposition in welfare economics, is an analytic judgment and universally valid. Market equilibrium is a priori Pareto-efficient because an individual incentive as the equilibrating force in a market is implied in the definition of the subject ‘market.’ In contrast, consider the state (in this context, the social security system) as the object of synthetic judgments. Although the contemporary welfare state is expected to achieve the norms of social justice, the history of state reasoning is multiple; appraisal of the state must depend on synthetic judgments based on experience. There are two cases in which private incentives as well as social norms play a role in the scheme of the state. The first is in a democracy, where, as Schumpeter discovered, politicians struggle for the vote. More broadly, the iron triangle of ‘politics, bureaucracy, and industry’ represents interestoriented democracy for economic policy; moral hazards and free rides

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rationally take advantage of social policy. The second case is when private incentives are built into the social security system to make the welfare system efficient and to control moral hazards and the like. As this is the direction of social security reform, there is agreement on the compatibility of efficiency and justice in this way. The left box in Figure 7.1 shows the structure of the question, whether synthetic a priori judgment is possible; the black area represents the locus of a priori in synthetic knowledge. Analogously, the black area in the right box of the figure answers the question, whether private incentives in a welfare state are possible; it includes the two cases mentioned above: moral hazards and efficient welfare. The political process in welfare reform is important because the transformation of the first case to the second, both depending on private incentives, is the task of institutional design based on deliberative democracy. In discussions during the political process, it is crucial to see whether self-interest or public reason prevails. For public reason to dominate the public sphere, it is necessary to construct an institution that is incentive-compatible with social norms. If Mandeville’s dictum ‘private vices, public benefits’ describes the consequences of self-interest in the market, in what circumstances does the same dictum hold for the consequences of self-interest in the welfare state? The answer will depend on the actual interaction between private incentives and social norms (Lindbeck, Nyberg, and Weibul 1999). With respect to the strategy of reform ‘from welfare to workfare,’ social norms demand self-help and independence assisted by work ethics, while private incentives relate to self-respect and autonomy supported by income earning power. The equilibrium between welfare and workfare in social security is represented by the relationship between wages in the labor market and welfare relief in social security (Solow 1998, pp. 17–22). In the Analytic

A priori Figure 7.1

Synthetic

A posteriori

Market

The state

Incentives

Market versus the state; incentives versus norms

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background of the demand for self-help and independence, there lies taxpayer abhorrence of the moral hazards of welfare recipients. The problem amounts to a solution of the moral paradoxes (moral hazards and moral dilemmas) described in Chapter 6, section 6.1. On the one hand, welfare recipients lose their self-respect and feel a sense of shame. If the reform of ‘from welfare to workfare’ is humane, it will produce a shift ‘from shame to self-respect.’ On the other hand, people might simply get a free ride on social security. In this case, the measures taking them ‘from welfare to workfare’ may impose a bitter mental trial ‘from free riding to self-help.’ It is desirable to maintain a balance between conflicting ethoses, and it is necessary not only to construct an economic scheme within the welfare state but also to implement a political process that critically evaluates this scheme. Approaches that support concepts like ‘market, incentive, and efficiency’ are indispensable to welfare reform, but must be limited by other democratic ideas such as ‘the state, norms, and justice.’ In light of the notion that the welfare state consists of ‘capitalism, democracy, and social security,’ welfare reform should be oriented toward the privatization of social security under market capitalism and an emphasis on public reason under democracy. The former is a move from the government to the private, and the latter is a move from the private to the public. As discussed in Chapter 5, section 5.5, the ‘government’ and the ‘public’ is not the same in democracy. The market approach to social security is disputed not only in economic theory, but also in the political sphere. Leading ideas in favor of the market, privatization, and efficiency from a political perspective incline toward libertarianism and the right wing. However, to regain a balanced discussion in the political arena it is also necessary to recognize the problem as an issue of political decision in democracy. Thus, the state must refrain from operating a bureaucratic, interest-driven government sector and encourage individual incentive and increase individual responsibility for public issues. Individual responsibility is best achieved within the scheme of social responsibility supported by social security.

7.4

THE FAMILY: INTERGENERATIONAL VERSUS INTRAGENERATIONAL JUSTICE

The financial crisis of social security is concerned not only with a macroeconomic dimension but also with demographic structure involving generational conflict. That conflict now centers on an explicit dispute between younger and older people over the burdens and benefits of welfare services. As a consequence, the implicit social contract underlying the welfare state

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verges on disintegration. If social conflict in the past involved the capitalists versus workers or rich versus poor, it presently focuses on the young versus the old. This raises the issue of intergenerational justice, which includes a complexity of economic, sociological, and moral problems. As we know, social security is a system of the de-marketization and de-familization of welfare. As a result of the externalization of traditional household work, intergenerational conflicts have become a public issue. The basic problem in terms of time is how the functions of saving and investment traditionally performed by the family and the market are to be coordinated with the social security system; this is the problem of intergenerational and intragenerational justice over resource allocation. The Concept of Generation The nature of intergenerational justice will depend on the definition of ‘generation.’ There are three different conceptions of the term. First, at any given point in time we can discern three general age groups in the population: children (0–14), people of working age (15–64), and the elderly (over 65). This formal conception of generation does not specify particular membership over time. Second, viewed as a time series phenomenon, population can be classified into cohorts. A cohort is a group of people born within a certain period, such as the baby boomer generation (born 1946–64). This conception of generation divides the population into groups that pass through different generations as the members age. Third, there is an abstract conception of generation that distinguishes between the existent and the nonexistent, such as the past generation, the present generation, and the future generation. Like the first conception, its members are not fixed but change as time passes. The substance of this theory depends largely on the historical cognition of the present. The meaning of intergenerational conflict differs according to the conceptions of generation. Intergenerational conflict in the first definition of generation means a conflict of interests between the old and the young over resource allocation and social policy in a given circumstance. Actual discussion of the generational relationship including conflict often occurs in this context. Since at a certain point in time each age group belongs to a particular cohort, generational conflict in the first sense means at the same time conflict in the second sense, but apart from that, there is a particular relationship between cohorts and it is necessary to shift our attention from the first to the second definition for the following reasons. A cohort, the second conception of generation, is historically unique in that it has experienced its own economic and social circumstances over the course of life. Even for three adjacent generations of parents, children, and

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grandchildren, each generation has been exposed to different periods of wars, prosperity and depression, and versions of social security. Among these generations it is impossible to consider generational justice by taking into account all the varying circumstances; they cannot be compared. The generations as cohorts may be in conflict as carriers of different histories, cultures, and values. Here arise problems of succession or severance of a generation. Apart from historical factors, the cohort concept involves the notion of life cycles or a life course. Each individual within a cohort passes through infancy, childhood, adolescence, adulthood, and old age. Since social security addresses the whole life course, the cohort concept of generation is important in that individuals must be fairly treated in each life cycle and different cohorts must be fairly treated over the life cycles. The third conception of generation is amenable to environmental disruption and natural resource exhaustion due to economic development; it provides important apparatus for studying a society over time. The peculiarity of this concept is that there is no problem of justice between the present generation and the future generation. For a problem of justice to arise, according to David Hume, there must be so-called circumstances of justice. The circumstances of justice are the normal conditions under which human cooperation is both possible and necessary (Rawls 1999a, p. 109). These conditions include scarcity, competing interests, and mutual cooperation. Between generations that do not coexist at the same time, mutual cooperation cannot occur so that it is hard to consider the relationship of rights and duties. Behavior of the present generation only affects the future generation unilaterally, and there is no reverse effect. Therefore, an attempt to protect the environment must be based on the idea that the present generation regards concern about the unborn future generation as a duty (Beckerman and Pasek 2001, pp. 11–28). On the contrary, Rawls’s contractarian approach tries to base intergenerational concern on moral theory. He focuses on the just saving ratio that society is to shape for posterity and tries to derive the just saving principle from a hypothetical social contract in an original position. The parties to the contract are under a veil of ignorance and know nothing about which generation they belong to. Hence it can be argued that they will behave as if they represented all generations and reach an intergenerational agreement through the imaginary exchange of their positions.1 From this standpoint, the question of whether or not the generations concerned coexist at a given point in time is surmounted by the assumption of an original position. The problem of justice between generations is mainly discussed in terms of the first and second conceptions of generation. Using these conceptions, we will explore the difference between income transfer within a cohort and between cohorts in terms of the concept of social security, and a difference

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between a funded system and a pay-as-you-go system in terms of the technical management of social security. The third conception of generation is useful in considering justice between generations in a broader perspective including social security. The notion of intergenerational justice can contribute to an analysis of the sustainability of social security as a whole through its relevance not only to the financial aspects of social security but also to economic growth, the succession of generations, the role of family, and the meaning of the elderly. Figure 7.2 compares the three conceptions of ‘generation.’ The horizontal axis shows year of birth, and the vertical axis shows age. Suppose that a person born in a certain year starts from that year on the horizontal axis and moves on an angled line of 45 degrees as time passes. On the man’s death at around 100 years old, the angled lines reach age 100. The arrows starting from various years of birth represent a group of cohorts. A point on each arrow indicates the population size, the probable age of survival, accumulated income and consumption expenditures, and other information. If we assume that an axis of the population is vertical to the plane, we see the changing size of the population for each year by cohort. If we choose a year on the horizontal axis (for example, 2000) and look vertically on the plane, the size of the population of each cohort gives us the population of age groups (for example, the three age groups consisting of children, people of working age, and the elderly). Finally, the present generation is roughly composed of individuals born in the period 1900–2000; the Ages

Cohorts

100

65 Age groups 15 45º 1900 Past generation

1950 2000 Present generation

Year Future generation

Groups of historic generations

Figure 7.2

Comparison of the three conceptions of generation

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preceding and subsequent populations constitute the past and future generations respectively. This is the classification of the historic generation. Generation and Family In distinguishing the three conceptions of generation, we did not touch on one important element, that is, the chain of human beings created through reproduction. The three conceptions, depending on demographic observations, abstract from biological continuity between parents and children and assume that generations are independent of each other. Human beings have always had parents but not necessarily children. In the sense that people are not born without parents, the preceding generation determines the following unilaterally. Human beings owe their existence to parents, not vice versa. The unilateral relationship from parents to children is the basis of all conceptions of generation. Thus viewed, the most universal definition of family in the functional sense is a system of reproduction. Regardless of the different social, cultural, and institutional forms of family, the biological system of reproduction determines the continuity of society. This is the minimum social purpose of family. Intergenerational and intragenerational relationships are a macroscopic summation of blood relationships from parents to children. Social security is a system of the de-familization as well as demarketization of welfare. Historically, several functions of family have been externalized to markets or the state, but the basic function of producing generations is never isolated from family, because by definition family is the creator of generations. The family is a community bound by ties of affection; mutual consideration between parents and children is spontaneous; it is neither an economic transaction nor a legal contract. The parental duty of nurturing children does not necessarily correspond to the right of children to be nurtured. The dominant virtue in a family is not justice; it is harmony by devotion, not the coordination of rights. Under a system of social security, the relationship between generations includes ‘communal feelings’ in that it is a substitute for family, on the one hand, and ‘public reason’ in that it implements social justice, on the other. In other words, it is partly a relationship between acquaintances and partly a relationship between strangers. Intergenerational and intragenerational relationships involve these plural values. Social Solidarity in the Practice of Social Security Social security ‘in practice,’ in contrast to social security ‘in theory,’ consists of two different concepts and two different methods of implementation;

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these distinctions provide a clue to the problem of justice between generations. The two concepts of social security are whether it purports to transfer resources from one’s younger age to his older age (intrapersonal transfer) or from the younger generation to the older generation (interpersonal transfer). Two methods of social security are a funded system and a pay-as-yougo system. Earlier chapters explored the notion of insurance as a pooling of risks and described social security as a scheme of income redistribution from those who are exempt from risk to those who face risk, where all members are insured under the social security system. This scheme was called ‘social security as an ideal type.’ For simplicity, in designing a plan of insurance, it is assumed that each person would pay equal premiums and receives equal benefits in the case of an accident. What matters is who is to be covered by the plan. Rational persons would think it desirable to include persons with a lower risk. However, in light of the reciprocity of their positions, the desirable condition is equal risks for everyone. Under the veil of ignorance, each person would believe that he is subject to the same degree of risks as others. In other words, under the fair condition of institutional choice, all members would agree to a cooperative scheme of insurance because it benefits everyone and thus establishes social solidarity. Although this remains the basic theoretical account of social security, it has two limitations: (1) it represents a static account of benefits and burdens of welfare services in a timeless world (or in one period), and (2) it represents a normative account of insurance in that under the veil of ignorance the insured do not know their own probability of risk. To properly deal with the issue of intergenerational justice, these two limitations must be eliminated. Thus, let us assume, first, that social security is a long-range plan for individuals located at different positions in the life cycle, and second, that risk probabilities of individuals by age have a systematic bias so that the elderly have higher probabilities of risk. Given these assumptions, we now have a picture of ‘social security as a practice’ in contrast to ‘social security as an ideal type.’ Under the second assumption, social security is no longer a defense against accidental risk that cannot be predicted to occur in a systematic way; rather, it is an established mechanism for redistributing income from the younger generation to the older generation. If benefits and burdens occur only once in life, the working generation contributes the premium unilaterally and the older generation receives the insurance unilaterally; this transaction is obviously unfair. If the members of the current working generation could believe that in old age they would be supported by the future working generation in a similar way, they would view social security as a system of reciprocal support and mutual advantage between

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generations. However, there is no guarantee that the coming generation will support the present working generation precisely because the future working generation does not yet exist and it is hard to predict its ability to provide support. Therefore, it is logically impossible to assume a reciprocal relationship between the present working generation and the present older generation. The point is that at a time when an equal probability of risks is not taken for granted among different age groups, as assumed under the veil of ignorance, and when it is evident that the elderly have higher risks, the younger generation cannot have a reciprocal relationship with the older generation and thus cannot enter into a social contract that is fair. Yet over the long term, the apparent discrimination of benefits and burdens between generations under social security is not necessarily unfair. The current young will become old, just as the previous young have become the current old. The issue of justice must be considered in light of the whole series of benefits provided and burdens encountered over a lifetime. In his explanation of the philosophical crisis of the welfare state, French sociologist Pierre Rosanvallon argues that today, when the difference in risk between the old and the young has become explicit, the traditional scheme of social solidarity as a pooling of risks, once supported, as it were, by the presumption of a veil of ignorance, is on the verge of disintegration (Rosanvallon [1995] 2000). Is Rosanvallon correct? The assumption of a veil of ignorance does not describe reality, but is a formulation of the fair conditions for social cooperation. The fact that at a point in time the young pay the premiums and the old receive the benefits of insurance does not mean that the veil of ignorance has been lifted. If each cohort is treated equally over a lifetime rather than at a certain point in time, the assumption of a veil of ignorance still holds. It is often claimed that social security should be maintained by social solidarity. If this stipulation is unconditional, it is wrong. In a society that enjoys an equitable system of cooperation, the fair assignment of benefits and burdens of social security will lead to a sense of social solidarity. Social solidarity should not support social security. The Life Cycle and Social Security In a social security system, there is no reciprocal support between two age groups at a point in time; there is only a unilateral relationship or chain of support from the top down. It is the ‘system trust’ that makes this relationship possible, as described in Chapter 4, section 4.5. The system trust in social security is secured by the continuous and sustainable working of the system in the long run. To verify this aspect of social security, it is

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necessary to introduce another condition of ‘social security as a practice,’ the time element. By introducing the perspective of time, we are able to view social security as the redistribution of income from the working population to the retired population over the life cycle of an individual or cohort (Falkingham and Hills 1995). In short, social security is income smoothing over the life cycle for the same individual or cohort. This differs from the static view that social security means the redistribution of income from the working generation to the retired generation between different individuals or cohorts at a point in time. In both views, while social security transfers income not only from the young to the old, but also to children through medical, nursing, and educational services, it is overwhelmingly oriented to old age. In a traditional age-discriminating society, a human life is distinguished by the periods of childhood, education, work, and retirement. In the childhood and educational periods, offspring depend on their parents for economic support. In the work period, people make their living through an occupation or marriage and then rear children and support parents. Eventually, they retire. People are not necessarily able to acquire income to satisfy their needs at each stage of life. A rational person will plan to save part of his income during his productive period, and spend excess money over income by loans or dissavings during the unproductive periods. This is the idea of life-cycle savings. Basic human needs vary according to the life cycle. In their early work period, people must spend their wages on marriage, housing, child care, and education, and are liable to go into debt. Then, as their income rises and their children become independent young adults, they can afford to increase their savings, which will be used for leisure activities, health care, long-term care, and so on during their retirement. However, some people are myopic and fail to provide for the future. The state should help individuals redistribute their income intertemporally according to the basic needs in the life cycle. Thus the scheme of social security, through the use of the insurance mechanism, asks working people for monetary contributions and copes with risk throughout their life by providing necessary resources from a collective pool. Social security differs from government’s preferential treatment of personal savings in that it applies the insurance mechanism to cohort groups and transfers income among individuals. The intergenerational relationship in social security refers to the relationship between benefits and burdens over the entire life cycle of each cohort, rather than the relationship between benefits and burdens of different age groups at a given point in time. Benefits and burdens should be calculated over the life cycle; benefits should include the total amount of pensions, health care, long-term care, and so forth paid out under the

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system, and burdens should include the total amount of social insurance premiums and taxes paid in to finance social security. The problem of fairness between generations is whether each cohort receives a nearly equal proportion of benefits and burdens – in other words, whether the rate of the prospective yield of benefits to burdens is nearly equal for all cohorts. This is the criterion for judging system trust in social security and the consequent possibility of social solidarity. Funded versus Pay-as-you-go System There are two major ways to finance social security: the funded system and the pay-as-you-go system. Under the funded system, people pay a premium to a permanent capital fund for a certain period and, after satisfying certain criteria, receive annual benefits from their accumulated fund, as is typically seen in public pensions. Under the pay-as-you-go system, current liabilities are met from current contributions, and no fund is accumulated in advance to meet future liabilities, as is generally observed in social medical insurance. In the funded system the budget is balanced over time, whereas in the pay-as-you-go system it is balanced for each period. When funding under the funded system for each cohort proceeds in a fair manner, as defined above, it is possible that circumstances in terms of the income and population of each cohort would produce the combination of benefits and burdens to allow the de facto pay-as-you-go system to work for some periods. In such a case, even with accumulated funds, benefits are financed not within a cohort but between cohorts. But the funded system and the pay-as-yougo system are different with regard to the principles of social security. The difference has to do with whether social security as a collective scheme will insure the working generation against risks in their old age or insure other members of the older generation. Of course, phenomena on time series and cross-sections intersect, and in reality the two methods of financing social security are mixed. What matters here is the theoretical interpretation. In practice, the ideas of the two methods are used as expedients particularly by the government, so that an argument is confused. One assertion, which seeks people’s support of the system, is that social security is the savings for one’s old age. Another assertion, in persuading people to accept a premium increase, is that it is society’s duty to support the older generation independent of individual loss or gain. This is the double standard. The correct idea can be explained as follows. Social security starts from rational individual behavior. The need for a public system of insurance to redress failures in the insurance market has been demonstrated by economic theory. Insofar as social security is a public scheme, particular risks

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of individuals during the life cycle must be abstracted in the calculation of a premium. To this end, individuals must be conceived not as existing at a given point in time but as passing through the whole course of life and treated equally as if they were under a veil of ignorance. This argument aims at efficiency on the assumption of fairness and requires a fairly funded system. In terms of pensions, a fairly funded system is an arrangement whereby insurance is actuarially fair – namely, the total amount of premiums is equal to the total amount of prospective benefits by cohort. In terms of health care, the proportion of total premiums to total medical expenditures over the lifetime must be nearly equal by cohort. As long as the conditions among cohorts are met fairly, the system can operate on a payas-you-go basis from the cross-section point of view. These two contrasting views characterize social security in practice. However, it is logical as well as persuasive to say that social security is a system for smoothing income and risk aversion over the life cycle, rather than a system for supporting the older generation by the younger generation. Only if an equal cost–benefit ratio is fulfilled for each cohort, is the pooling of insurance over all cohorts justified, so that the pay-as-you-go system is realized as well. In other words, if fair conditions prevail, social security can achieve the transfer of income between individuals and between cohorts in every period, maintaining at the same time the function of income smoothing for individuals and for cohorts in the long run. This concept conforms to the definition of social security as an ideal type in that all participants agree to a social contract under a veil of ignorance at a given point in time because they are confronted with equal risk. Although social security as a pooling of risks is an incentive for individuals to participate, it eventually results in justice because under a veil of ignorance the condition for fairness is satisfied. It is social security as an ideal type that explains the fairness of the pay-as-you-go system. By contrast, in the real world of social security, the veil of ignorance is lifted and particular individuals in particular positions in the life cycle and with particular degrees of risk replace veiled individuals. Although the risks of the old and the young are different at a given point in time, if fair conditions prevail for both cohorts over the course of life, the idea of a pay-as-you-go system can explain social security. Although this account provides, as it were, the cross-section view and the time series view of social security, the problem is consistency between the two. Suppose that income redistribution during the life cycle is designed for each cohort on a funded basis. In practice, there may emerge an imbalance between benefits and contributions for each period and the accumulated fund will vary accordingly. In the case of the pay-as-you-go system, benefits and contributions are equal for each period and there is

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no fund accumulation. The government, even though it started with the funded method, may be tempted to switch to the pay-as-you-go system for expediency. Thus, based on a current overflow of contributions, the government may raise the level of benefits, or based on a current shortage of contributions, it may raise premiums or reduce benefits. These policies might invite conflict between generations and destroy their trust in the system. Insofar as the pay-as-you-go method is to be employed, it is necessary beforehand to test the fairness and sustainability of the system using a cross-section of cohorts in different periods. Currently most countries are worried about the financing of social security. The origin of their concern lies not in theory but in accumulated historical conditions. Originally social security started with low premium rates because of low income levels; what was worse, due to postwar inflation, the fund had been depreciated. It was then clear that social security could not secure a decent life in old age on a funded basis. With rapid economic growth and the baby boom, the pay-as-you-go method made it possible to find the source of benefits in the growing economic capacity of the working generation. In this way, the standard of living of the current older generation has rapidly improved in a short period by expedient social policies. However, if this standard is to be maintained for the baby boomer generation, increasing burdens must be imposed on the declining future generation. This is more or less a common story for the developed countries (Thomson [1991] 1996). In this situation, where the actual system of social security does not satisfy the fair condition of intergenerational justice, one cannot say that social security offers mutual support between generations. Although it is sometimes difficult to use the fair funded method, it has a crucial importance in correcting the reality of the unfair pay-as-you-go system and in showing the criterion of social security reform. The idea of so-called generational accounting is to measure the net amount of benefits and burdens each cohort of the present generation is expected to receive over a lifetime from the government assuming current policy and institutions (Kotlikoff 1992). Since this covers not only social security but also all fiscal activities of the government, but does not include past benefits and burdens, this is not the same as our concept of the lifetime benefits and burdens of social security. However, the objective of generational accounting is to find the crisis of fiscal activities not in the budget deficits of single years but in the enormous burden that future generations must bear to sustain the current fiscal institutions, based on a comparison of the generational incidence of fiscal policy. In that the generational accounting approach pays attention to the fairness of benefits and burdens over time for each cohort, rather than to the relationship between the

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receipts and expenditures at a given point in time, it accords with our approach to social security. Principle of Just Savings and the Intergenerational Succession of Stock Now that we have formulated the condition of justice in social security between generations as the equal proportion of benefits to burdens between cohorts, we will investigate the meaning of intergenerational justice in a broader perspective. When the issue of justice is debated in the context of social security, the argument is likely to consider ways in which the younger generation should assist the older generation through the family or the state. In contrast, when the same problem is discussed in moral philosophy, the central issue is what the present generation should do for future generations. How can we explain this gap? It is surprising to learn that in the history of moral philosophy justice over time or between generations did not exist as a subject of analysis, or even as a concept, before the 1970s, when Rawls published A Theory of Justice (1971) (Laslett and Fishkin 1992, p. 14). Therefore, his way of framing the issue deserves our attention. He regarded the justice between generations as the choice of a just saving ratio by each generation in the unilateral procession of time from the past to the present, and from the present to the future, because real saving is needed to preserve a just basic structure over time. A key to this problem is the condition of the original position under a veil of ignorance, where people have self-interest and are mutually disinterested; they do not know to which generation they will belong. In the first edition of A Theory of Justice, Rawls originally assumed that a generation cares for its immediate descendants, as fathers care for their sons. But since he was criticized that this assumption contradicted the assumption of mutual disinterestedness, he replaced it with the condition of consensus and conformity for all generations, and assumed that people in the original position will ‘agree to a savings principle subject to the further condition that they must want all previous generations to have followed it’ (Rawls 1993, p. 274). In short, Rawls’s contractarian approach was to find a just savings principle that could be approved by anyone under the condition of fairness, whichever generation he might belong to. Rawls did not formulate the content of a just savings principle, but indicated what he thought about the place of a savings principle in the theory of justice. Two points are important. The first point is the relationship between the savings principle and the difference principle. His introduction of the concept of savings into intergenerational justice seems to have been influenced by economics. In economics, it is believed that income in the

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following periods will increase by saving a portion of current income and investing it into real capital; this is economic development through capital accumulation. The underlying idea is the growth of income and well-being not in a current period but over the long term. Given the process of economic growth, since the income level of preceding generations was lower than that of succeeding generations, the growth mechanism whereby each generation makes a contribution to those coming later and receives from its predecessors contradicts Rawls’s difference principle, which instructs us to maximize the expectations of the least advantaged group. He stipulated that the just savings principle between generations should come before the difference principle within a generation; in other words, consideration for future generations should be a constraint on justice to the present generation so as to put aside a portion of income for posterity. The second point relates to the content of capital accumulation. Rawls observed that the capital to be accumulated by just savings should be not only factories and machines but also knowledge, culture, institutions, and techniques (Rawls 1999a, p. 256). This stock of capital is received from previous generations to enable the later ones to enjoy a better life and is transferred in return to future generations in an expanded and improved form from the viewpoint of justice. More broadly speaking, the intergenerational succession of five categories of stock (namely, human, economic, natural, social, and cultural capital), described in Chapter 6, section 6.6, is the problem of a just savings principle. From this viewpoint, the size and quality of the population represent the public issue of intergenerational justice in the context of the declining and ageing population. Intergenerational Transfer in Capital Formation and Life-cycle Savings Compared with the broader perspective, intergenerational justice with reference to social security is limited to the relationship between adjacent age groups in the present generation, particularly the support of the old by the young. Whether social security is seen as the savings of the young for their old age or as intergenerational support of the old by the young, it is a transfer of resources from the young to the old. But the intergenerational relationship in social security is part of the intergenerational relationship in an economic society as a whole. For an overall picture, a macroscopic observation of the relationship is helpful. There is an intertemporal economic relationship between the three institutional entities of ‘family, market, and the state,’ and their activities take the forms of capital formation, transfers, and lending (Lee 1994, p. 19). In economic thinking, a mechanism that governs an intertemporal economic relationship is economic growth based on saving and investment. In this

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Table 7.1

I.

Intertemporal resource allocation

Capital formation II. Transfers III. Lending

305

A. Family

B. Market

C. State

House, consumer durables Child care, education, bequests Saving

Capital equipment Government debts Stock, bond, credit

Social capital Social security Government loans

mechanism, intergenerational transfers (II) and saving (III) by family (A) occupy an important place (see Table 7.1). Two major determinants of personal saving (excluding corporate saving) are intertemporal transfers through bequests and life-cycle saving. Which of the two is the most important determinant of saving is controversial, but their significance is beyond question (Kotlikoff 1988; Modigliani 1988). Life-cycle saving is so-called hump saving or saving for old age and is offset by dissaving of the old. Hence, in the case of an ageing population and declining economic growth, the macro saving ratio will decline. Substantial social security works as a supplement or substitute for saving for old age and tends to reduce the incentive to save. But the lack of system trust due to the crisis of the welfare state or the injustice of the benefits–burdens relationship will raise the feelings of self-protection and increase the propensity to save for old age. Intergenerational transfers through bequests to descendants are traditionally a main cause of personal saving, and bequests are theoretically and practically made in return for the support of the old by the young. Social security is the de-familization of services for the old and dispenses with care by the family. Although increasing longevity might somewhat reduce the room for bequests, bequests do not disappear ex post. The fact that, while care and support within the family are socialized through social security, bequests are not socialized and continue within the family will raise the issue of intergenerational justice in the social system. The de-familization of bequests by raising the inheritance tax will, first, make the intergenerational relationship in social security fairer and, second, achieve fair equality of opportunity as the prerequisite of social security (or the essential condition of Rawls’s property-owning democracy). Between the past, present, and future generations the transfer of resources proceeds unilaterally through savings. This will define intergenerational justice as a global framework, within which both private resource transfers between generations within the family and public transfers through social

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security take place. Within the family, there are bilateral transfers: that is, transfers from the young to the old (life-cycle saving), from the young to the old (support and care of parents), and from the old to the young (childrearing, education, and bequests). In social security, transfers from the young to the old are dominant, in addition to transfers from the rich to the poor. In a mixture of intertemporal resource allocation by the family and the state, capital accumulation by business firms takes place in the market. At first sight, current workers and the aged are in conflict concerning the benefits and burdens of social security; however, the real issue is the conflict between ‘the stream of intergenerational justice’ transferring resources from the present generation to the future generation, on the one hand, and ‘the backwash of intragenerational justice’ transferring or redistributing resources within the present generation, on the other. This conflict is connected to a conflict between the dynamics of capitalism and the stability of society. Coordination between Capitalism and Social Security The principle of capitalist development is that the resources saved by the household are invested in real capital by entrepreneurs and lead to the massive accumulation of social wealth. In The Economic Consequences of the Peace (1919), Keynes characterized European economic development in the nineteenth century: ‘In fact, it was precisely the inequality of the distribution of wealth which made possible those vast accumulations of fixed wealth and of capital improvements which distinguished that age from all others’ (Keynes 1911, p. 11). Keynes understood the crucial relationship between the dynamics of capitalism and the inequality of distribution, and questioned whether the principle of accumulation based on inequality could continue to work. His insight was that this extraordinary economic progress ended in August 1914. The principle of accumulation based on inequality is inherent in capitalism; it is also a justification for the capitalist version of intergenerational justice. Keynes’s normative thought on distributive inequality is also evident in his early writing: I believe that the seeds of the intellectual decay of individualist capitalism are to be found in an institution which is not in the least characteristic of itself, but which it took over from the social system of feudalism which preceded it – namely, the hereditary principle. The hereditary principle in the transmission of wealth and the control of business is the reason why the leadership of the capitalist cause is weak and stupid. It is too dominated by third-generation men. Nothing will cause a social institution to decay with more certainty than its attachment to the hereditary principle. (Keynes [1925] 1972, p. 299)

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He did not entertain the notion of socialist egalitarianism. Finding the driving force of social progress in the activities of intellectual elites, he held that the hereditary system of property as the major source of saving produces monopoly and inequality of opportunity and depletes a society of intellectual innovation. His position might be called ‘perfectionist egalitarianism.’ Keynes in this stage only intuitively forebode the decay of the old order due to the inequality of wealth and did not yet formulate a theoretical new order. Later in the General Theory (1936), where he established the theory of effective demand, he could argue: Thus our argument leads to the conclusion that in contemporary conditions the growth of wealth, so far from being dependent on the abstinence of the rich, as is commonly supposed, is more likely to be impeded by it. One of the chief social justifications of great inequality of wealth is, therefore, removed . . . [T]here are certain justifications for inequality of incomes which do not apply equally to inequality of inheritances. (Keynes 1936, pp. 373–4)

Keynes’s remedies for unemployment by increasing effective demand, which included equalization of income and wealth to raise the propensity to consume for society as a whole, are consistent with the policies of social security. Keynesian economic policy has the function of offsetting or reducing what I have called ‘the stream of intergenerational justice’: the transfer of resources from the present to the future is partly offset by ‘the backwash of intragenerational justice,’ which transfers resources within the present generation. One issue of social security reform is coordination between intergenerational justice and intragenerational justice, or between capitalism and social security. Although, for the sake of explanation, I have distinguished two notions of justice, what I am concerned with, more fundamentally, is a system of justice in the time perspective. Clearly the logic of capital and market in capitalism is remarkably dynamic and productive, but it is the aim of social security to redress the consequences of that logic. In this sense, we cannot deny that social security is liable to be a backward-looking safety net. However, if social security is to start with the lack of excellence in human existence and then to aim at the exertion of human excellence, it will work rather as a springboard and render vitality to capitalism. This will formulate a new direction for the long-range task of social security reform, but there is a short-term problem of correcting injustice within the system. It is obvious that the actual relationship between benefits and burdens unduly favors the older generation, and that a similar relationship would not apply in the future to the current working generation in light of the declining and ageing population. Although the old have a greater need

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for social services than the young, they should bear a larger share of the burden, one that corresponds to their benefits in order to avoid excessive positive ageism. It is necessary to shift resource transfers from the old to the young, concentrating on birth, care, and education of succeeding generations. This forward-looking shift will modify those aspects of intragenerational justice that are to be harmonized with similarly forward-looking intergenerational justice.

7.5

THE STATE: INSURANCE VERSUS ASSISTANCE

Social Insurance and Social Assistance One of the issues of social security reform concerns the choice of financing methods – through premiums or taxes – and basically relates to the alternative programs of social security, namely social insurance and social assistance. To the basic question of what is social security, the prevailing view holds that there are two models: social insurance and social assistance or relief. In regard to the source of funding, social insurance depends on insurance premiums (or contributions) and social assistance on taxes. The two models are based on the insurance principle and the relief principle respectively. Consequently, a sophisticated critique maintains that social security has no unified principles; even in discussions on reform, the two methods and the two principles are in dispute. Social insurance is a public program that insures against the loss of the basic necessities of life. With insurance, whether public or private, all members of a group (the insured) contribute a premium, on the basis of a contract, and are compensated for injury from the pool of contributions. The fund to bankroll social insurance may include taxes and co-payments of recipients in addition to premiums. In contrast, social assistance or social relief is a public scheme whereby the insured persons receive benefits only from general taxes; they pay no premiums. A means test is sometimes required to prove that recipients require basic services. In fact, the financial source of social security is either recipient contributions or taxes. These are collected from people through different rules and procedures and distributed to people either in cash or in kind. Although the institutional rules and procedures for contributions and taxes are different, each model has a wide range of operations. Hence it is incorrect to conclude from past and present experience that the two models of social security depending on contributions and taxes are based on different principles.

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Among scholars and practitioners of social security, however, the view that social insurance and social relief are different broadly prevails. Thus when the implementation of a specific social security program is placed on the national agenda, there is disagreement about which principle should be adopted. However, so-called principles of insurance and assistance are not so much theoretical determinants of institutions as descriptions of historically contingent institutional characteristics. The prevailing view might be called a sociology of fund-raising for social security. The moral principles of justice so far described, I believe, attest to the basic identity of social insurance and social assistance. It is not that contributions and taxes as they are used are the same, but rather that a normative valuation must be assigned to the two institutions from a moral point of view. In other words, it is a matter of legislation, not the interpretation of laws. Our specific concern here is (1) to provide a unified account of social insurance and social assistance on the basis of moral theory, and (2) to offer a critique of the general view of taxes also from the standpoint of moral theory and replace it with a new concept. For the first point, as we explained in Chapter 6, the principles of justice based on the contractarian approach establish the essence of social security and the principles of excellence and efficiency are to be implemented to supplement the principles of justice. In this way, social security is considered to be insurance, and this is the notion of ‘social security as an ideal type.’ With regard to the second point, the difference between social insurance and social assistance relates to institutional types in ‘social security as a practice’ and cannot be justified in terms of moral theory. Critiques of the Prevailing View The balance of this section is devoted to a critique of the view that distinguishes between insurance and assistance as different principles. Since this view has been generally accepted, it is unfair to censure any authors who happen to hold it.2 Table 7.2 illustrates the prevailing – but incorrect – view of the differences between social insurance and social assistance. In Table 7.2, comparison (1) only defines the different sources of funding: that is, social insurance depends on compulsory insurance contributions, whereas social assistance is financed through taxes. But the prevailing view asserts more; it emphasizes that with social insurance individuals are entitled to benefits on the condition that they pay premiums, whereas in social assistance individuals receive benefits as public measures under certain conditions without making contributions. This assertion would have little compatibility with the approach of contemporary social sciences, particularly economic and political theory. Insofar as taxes and

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Table 7.2

(1) (2) (3) (4) (5) (6) (7) (8) (9)

Social insurance versus social assistance: the prevailing view

Source Origin Function Object Suitability to the economy Quid pro quo Degree of right Level of benefits Availability of funds

Social insurance

Social assistance

Premiums Bismarck’s social policy Spread of risks Universal Conformable

Taxes Elizabethan Poor Law Redistribution of income Selective Unconformable

Strong Strong High Easy

None None Low Difficult

premiums are regarded as the mandatory resources of cooperative projects in the national community, it is irrelevant whether people have contributed or not to qualify for social services. Both insurance and assistance are a system in which all members of society support each other. The view that the state provides benefits unilaterally independent of the citizenry is hard to accept; it is the authoritative statist thought on the relief of the poor. Although the basic theory of taxation was long dominated by the ability theory (taxes should be based on the ability to pay), Knut Wicksell, the proponent of the benefit theory (taxes should be based on the benefits received), refuted it as rooted in absolutist political philosophy (Wicksell 1958). In today’s public economics, public expenditures from taxes are divided into public goods and merit goods (including social security); the former is explained by benefit theory and the latter by social contract theory. Behind both theories lies democratic political philosophy. If the prevailing view on the distinction between social insurance and social assistance is linked with the old view of taxation, social security based on the use of taxes is likely to operate in a paternalistic way in limited areas such as social assistance under humiliating conditions to recipients. If one discards such prejudice and stands on the notion of social security as a social contract, both taxes and premiums for social security mean contributions to insurance. Under this contractarian paradigm, it is wrong to regard social assistance payments as benefits without contributions. In the democratic community, everyone performs a duty to sustain public goods and merit goods as prescribed by law. There is no reason to combine assistance with taxes, or to distinguish between insurance and assistance. Comparison (2) relates to the historical origin of the two approaches. But a difference in origin does not represent a difference in logic. For example,

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even if the origin of money were a shell or a metal, does such a difference represent a lasting dichotomy in the functions of money (that is, measure of value, means of exchange, and store of value)? It is because a difference in historical origin might be seen as meaningful for the understanding of functions that comparison (1) is asserted. Comparisons (3)–(9) have no basis in principle. Among others, (3) is a basic misconception of the conventional view. It is misleading to contrast the ‘spread of risks’ with the ‘redistribution of income’; they are the same. Under an insurance plan, the risks of particular individuals are spread to all members of the plan, and income is transferred in the opposite direction from all members to the sufferers. From the contractarian standpoint, anyone is likely to be subject to risks such as poverty, sickness, disability, and unemployment. Behind the veil of ignorance, no one is destined to be among the lower paid, invalid, or unemployed. No one can be sure in advance whether he may ultimately fall into one or more of these groups. Social security, which is based on Rawls’s difference principle, provides for such unforeseen risks. In society, people actually bear financial burden according to their ability to pay, whether by contributions or taxes, and receive benefits from the pooled fund according to damages incurred. The relationship between burdens and benefits is expressed as the spread of risks as well as the redistribution of income from the people who have escaped these contingencies to the people who have suffered from them. It is wrong to say that insurance is the spread of risks, whereas assistance is the redistribution of income. Two methods of raising funds – taxes and compulsory contributions – should be examined. Taxes are dedicated to the provision of public goods and merit goods; social security services are defined as merit goods. Taxes as a whole, whether proportional or progressive, must be imposed according to ability. In the contractarian view of justice, persons in advantageous positions have the ability and the duty to bear larger insurance burdens. For private insurance, premiums are determined basically according to the probability of the risks in question irrespective of differences in the earnings of the insured. For social insurance, in contrast, the rate of contribution depends in principle on the ability to pay. Social insurance is characterized by the ability-to-pay principle, compulsory subscription, and two kinds of risk spread. If it is assumed that private insurance depends on a risk rating for each individual – in other words, if it is based on strict actuarial equity – risks are spread from those without incurred risks to those with incurred risks. This may be called the first kind of risk spread. In compulsory social insurance, the probability of specific risks to individuals is averaged among them, so that there is, in addition to the first kind, the second kind of risk spread between those with high and low needs for services with regard to the cost sharing. The reason for social

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insurance lies in the necessity for the second kind of risk spread from the standpoint of social justice. To this are added the ability principle and compulsory subscription to define the social security scheme. The conventional view, which distinguishes between the principles of assistance and insurance, seems to presuppose that in social assistance those who are given relief are determined in advance and are to be supported by taxes. This transfer is called the ‘redistribution of income.’ In the case of social insurance, in contrast, the conventional view implicitly assumes that those who will receive assistance is not predetermined so that all persons, as the insured, contribute to the system. When risks become a reality, the affected persons receive benefits from the pooled fund. This transfer is called the ‘spread of risks.’ Strangely, in the explanation of social assistance the term ‘spread of risks’ is not used, and in the explanation of social insurance the term ‘redistribution of income’ is not used. Further basic assumptions seem to be involved in this conventional view. First, whereas social assistance is concerned with an ex post state whereby risks have already become reality, social insurance involves an ex ante state whereby risks have not yet become reality. Accordingly, as those who should receive relief and benefits are known, they should be the beneficiaries of tax dollars; as patients who may need medical services are not identified, social insurance is appropriate to prepare for such an emergency. However, since social security is the security against certain risks as well as the measures against them, it is absurd to attribute the distinction between ex post and ex ante risks to social assistance and social insurance. Second, apart from ex post and ex ante, in the conventional view, the redistribution of income as it relates to social assistance implies a transfer of income from the rich to the poor and is based on the notion of relief of the poor and benevolence. In contrast, the spread of risks as it relates to social insurance implies equal burdens and benefits among the insured irrespective of their earnings. The basic idea of the prevailing view is that whereas social insurance is a scheme of mutual exchange based on the notion of self-help, social assistance does not depend on self-help but on benevolence and charity. But risks are prevalent, and as income differences are one of the social risks, the recipients of poor relief are not fixed; they happen to suffer from the risk of low income as the result of a social process. This has something to do with comparison (4). It is inappropriate to say that whereas the object of social insurance is universal, that of social assistance financed through taxation is selective. This contrast is valid only if the programs are run this way, but this is not always the case. Selectivism is based on the tradition of the poor law that restricted the beneficiaries by means testing, whereas universalism involves the provision of uniform services for all citizens based only on needs. Since means testing determines

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the level of poverty based on income and property ownership, it is in principle nothing more than checking for the lack of the basic necessities of life. Why are needs testing and means testing distinguished? Perhaps selectivism aims to limit objects, reflecting the notions of social relief without contributions and of taxation along statist lines. If the contrast between insurance-universalism and assistance-selectivism holds true, why are medical services financed by taxes in the UK, but financed by social insurance in Germany? From the standpoint of contractarianism, social services satisfy basic needs on a universal basis, whatever the resources may be. Comparison (5) is also unfounded. Social insurance and taxation are equally based on government coercion, and neither is more conformable to the capitalist system. It is inaccurate to assert that whereas taxation depends on coercion, social insurance contributions are made voluntarily. Such an argument compares taxation with private insurance. Comparison (6) might be the basis of argument (5). Quid pro quo (something for something) refers to the relationship between burdens and benefits. The equation P  Z, as we introduced in Chapter 6, section 6.1, meaning that a premium is equal to the product of accident probability and potential loss, indicates the equality between a premium and a mathematical expectation of loss in a private insurance market; in other words, it represents the market principle of quid pro quo. Indeed, as reverse selection takes place in an insurance market, it is difficult to calculate a premium on the basis of a particular probability of a particular person, and this equation does not hold rigidly. In the case of social security, where a uniform premium applies, this actuarially fair equation is more and more difficult to hold. Quid pro quo barely holds in the sense that the entitlement arises on the condition of paying premiums. Whereas the notion of social assistance based on taxes has no quid pro quo by definition, a scheme without quid pro quo or reciprocity is not a just system from the viewpoint of moral theory, according to which all kinds of social security are insurance as a social contract. Comparison (7) is related to (6) and is also untrue. The conventional view asserts that whereas one can obtain benefits in exchange for contributions, the benefits financed by taxation are unilateral measures of the government and are incongruous to a free society. Furthermore, it is contended, social assistance requires a means test, which attaches a moral stigma. If this is true, there are two reasons why the assistance scheme is so detested: mismanagement of the scheme and belief that government taxation is exploitative. The conception of the social security system based on the contractarian view of government is that even if the poorly paid get benefits from taxation, they have a natural right as citizens because they fulfill their duty to pay taxes, however small or zero, and the right to receive benefits according to law. No one gets benefits without discharging his obligations.

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Moreover, insofar as social security relieves those for whom risks have actually materialized, it is accurate to say that benefits, whether financed through taxation or contributions, are always given selectively. Therefore, the social security system and the tax system require a device such as a means test or an income test to implement contributions according to ability and distributions according to need. These tests are not a stigma in themselves. In fact, a stigma is a contingent result of mismanagement of social assistance that deprives the recipients of their general rights as citizens. It is surprising that social security expenditures out of taxes are characterized by prejudice. Although the government spends tax dollars on various goods and services, not all expenditures have such humiliating effects as social relief. Some categories of government expenditure are rated highly on the basis of the theory of excellence. A social security system can be transformed into a positive welfare policy to broaden the possibility of human existence and to achieve self-respect. Neither comparison (8) nor comparison (9) is a problem of principle. If these contrasts are true, they are merely an outcome of the conventional view that regards social security through taxation as undemocratic and inferior and thus makes it difficult to achieve a national consensus on the improvement of such an approach. It is often argued that social assistance is financed by ‘public money.’ This argument erroneously presupposes that taxes are not born by people. The perception that insurance and taxation are identical is rooted in moral theory and shared by the democratic conception of government; it is a prerequisite for the reconstruction of the welfare state from a budgetary perspective. Conclusions The social security system provides the basic structure of a just society according to the principles of justice. The principles of justice derived from contractarianism are similar to the principles of insurance in that both articulate a social scheme of solidarity to avert risks. The principle of insurance, private or social, is an organizing principle based on self-help and voluntarism. Social assistance and social insurance require the same organizing principle for providing social security. In accordance with an approach in public economics that interprets the provision of public goods on the basis of a benefit principle, the contractarian principle of justice, I contend, can integrate social assistance and social insurance as far as the provision of merit goods is concerned. Ideas should drive institutions, not vice versa. The conventional views examined here erroneously take contingent institutional facts as a matter of principle.

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This argument does not deny that there are differences between taxation and insurance as they take shape in reality. The adoption of measures is a matter of convenience that depends largely on historical conditions. It is a mistake to view a matter of convenience as a matter of principle. It is helpful to see that social assistance and social insurance are moving closer together in practice; the services of pensions, health, and care are financed by taxes and contributions. As there is no difference between the two methods in terms of the level of principle that should govern the reality, it is possible to obtain a unified theoretical position by abandoning the conventional view, which is nothing more than a partial description of contingent facts. After all, the burdens of social security are born by premiums, taxes, and co-payments; these are all burdens of people. It is important to recognize that the moral foundations of a social security system rely on the principles of justice. Thus there is no reason why particular social services must use particular methods of funding. On the one hand, it is wrong to argue that only the method of social insurance is rational in the sense that burdens and benefits correspond with each other. On the other hand, it is a prejudice of the absolutist notion of the state that taxes are used only for social relief. Unless the spending of taxes is based on the contractarian notion of social justice, it is not a democratic procedure that satisfies taxpayers. It will always be argued that the principles of social insurance and social assistance are mutually exclusive and to be distinguished; but as far as I can see, social security from the conventional perspective is simply prejudice.

7.6

POSITIVE SOCIAL SECURITY

The Third Way The Blair Labour government formed in 1997 in the UK called its political manifesto ‘the Third Way’ (Blair 1998). This meant to emphasize its differences from the neo-liberalism of Margaret Thatcher’s Conservative Party as well as from the social democracy of the old Labor Party. It is British sociologist Anthony Giddens who has given a theoretical pillar to the manifesto. He has presented ‘the Third Way’ as a new type of political and economic system; his argument deserves our attention, for it is a systematic proposal for welfare state reform (Giddens 1998).3 Giddens compares market-oriented neo-liberalism and governmentoriented socialism and proposes ‘the Third Way’ to transcend the conflicting two doctrines and their defects. The conflict between neo-liberalism and socialism is recognized as a dispute between efficiency and justice. Neoliberalism is devoted to market fundamentalism and hostile toward the

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welfare state, regarding it only as a minimum safety net. Socialism restricts the role of markets and supports the broad intervention of government into economic life to make life more secure and to equalize distribution. Given the practical failures of these two doctrines ways that have dominated the political thought in the postwar period, Giddens argues, a third way must be found. His Third Way makes much of both efficiency and justice, or economic dynamism and social solidarity. It covers diverse areas of a society such as democracy, a mixed economy, civil society, family, social security, international relations, and calls for ‘structural pluralism’ to sustain a balance between the state, the market, and the community (civil society) (Giddens 2000, pp. 51, 55–6, 63–4). The core elements in Third Way politics are the communities of civil society that constrain and mediate the state and the market. Here we will focus on Giddens’s Third Way proposals for the welfare state. According to Giddens, the welfare state should not be limited to the negative and passive provision of a safety net. Rather, it should develop the abilities of and positive opportunities for individuals. He calls such a scheme the ‘social investment state’ for a society of ‘positive welfare’ in place of the welfare state. Although this positive welfare society provides for risks as the welfare state does, it specifically pays attention to the fact that risks create opportunities and become the sources of energy. It requires preparing risk environments that are suited to a future-oriented society and active risk-taking. Strategic fields of effective risk management are education, incentives, entrepreneurial culture, flexibility, devolution, and the cultivation of social capital (Giddens 2000, p. 73). Giddens has constructed a ‘risk matrix,’ shown in Figure 7.3, to explain his concept of the social investment state (Giddens 1998, p. 63). There are four kinds of risk management depending on whether the reaction to risks is active or passive, and whether it is individual or social. In the lower part of Figure 7.3, the old-style welfare state is concerned with the social passive response to risks, that is, ‘security,’ while the individual passive response to risks is to assume ‘responsibility’ for the outcome. The upper part of the figure indicates that the task of the social investment state is an active response to risks; society has a scheme to create a new ‘opportunity’ and supports an individual’s risk-taking activities for ‘innovation.’ Giddens criticizes the negative image of the five giants, that is, Want, Disease, Ignorance, Squalor, and Idleness, which Beveridge regarded as the targets of social security, and instead advocates that positive targets be the objectives of positive welfare, that is, autonomy, active health, education, wellbeing, and initiative (Giddens 1998, p. 128). Giddens’s proposal for the Third Way is important in presenting a method of reconstructing egalitarian thought after the fall of socialism.

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Active

Opportunity

Innovation

Social

Individual

Security

Responsibility

Passive Figure 7.3

Risk matrix

Indeed, as some critiques maintain, it was already practiced in the Nordic welfare state and could only be a goal for Britain after Margaret Thatcher or for the US after Ronald Reagan. Furthermore, insofar as the Third Way follows a middle course between the right and the left, or the left of the middle, it will be criticized by the right wing as still statist and antimarket, whereas it will be criticized by the left wing as a return to market fundamentalism. Apart from such political responses, I am rather interested in the theoretical structure of the Third Way and believe that it does not fully clarify its ethical foundation. In light of the theoretical structure developed in this book, it must be the value of excellence based on community that mediates between efficiency and justice, or economic dynamism and social solidarity. The Integration of Ability and Need As the ethical system presented in Chapter 1 indicates, moral thinking in terms of the standard pair of values, that is, good (efficiency) and right (justice), suffers from the fatal neglect of virtue (excellence). Right is an ethic of institutions that provides a framework for individual behavior. Under just institutions, people can live without conflict in pursuit of their

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own good. In this sense, right is the minimum norm in society; it is necessary for well-being but insufficient for two reasons. On the one hand, although right ensures that people’s civil, political, and social rights are respected reciprocally, it does not necessarily emphasize the duties that are essential to sustain institutions. Such duties include public reason as a virtue. On the other hand, although people can pursue their own good based on self-interest under just institutions, the quality of the good attained is not necessarily questioned. What distinguishes human existence and its achievements is an individual’s character and capability, and a measure of quality is excellence. Only virtue or excellence of existence can mediate between right and good, or between justice and efficiency, as indicated in Figure 1.4 of Chapter 1. If the Third Way strives for this mediation, it should be based on the ethics of virtue (excellence). The traditional-style social security locates the notion of good under public control from the viewpoint of right. Although the welfare state could be concerned with the redistribution of good, it does not focus on the evaluation and improvement of good, which is made possible in two ways. First, social security services should contribute actively to the advancement of human capabilities, namely the expansion of opportunities and the promotion of achievements. Social security must have dynamic goals. I have argued that the ethics of virtue provides the foundation for a dynamic programme of social security that shifts our focus ‘from the lack of ability to excellence of ability.’ As a result, the function of social security is transformed from a safety net into a springboard. Second, the quality of social security services should be improved to achieve this goal. This is the role of competition as a dynamic force within the framework of social security. As is typical of medicine, caretaking, and education, the quality of social security services that are addressed to maintaining and improving human capabilities is so hard to observe and evaluate that the allocation of these services has been shifted from markets to public control. But the introduction of market factors into the public scheme is essential. Thus my notion of ‘positive social security’ means two things: dynamism in the goal and dynamism in the means of social security. As mentioned in Chapter 6, section 6.1, Karl Marx described the ideal of communism by the slogan ‘from each according to his ability, to each according to his needs.’ Although it is a truism that this rule by definition holds in a hypothetical society of communism without economic scarcity, it is not workable in any real society. A system of social security applies this rule, though to a limited degree, in the satisfaction of basic human needs. I argued that the economic and moral paradoxes of social security emerge from the gap between the benefits according to ‘needs’ and the costs according to ‘ability,’ and that the solutions of these paradoxes also lie in

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the treatment of the gap (see Figure 6.1). Although the solutions were inherent in the ideals of social security, they were neither noticed nor practiced because the system of social security was not led by the ethics of virtue (excellence). The social security system starts with the notion of satisfying basic human needs; the failure to meet those needs will endanger the value of human existence. The system of social security thus ensures the satisfaction of basic human needs as a right. However, since the satisfaction of basic needs is intended to cultivate potential human abilities and to create opportunities for self-fulfillment, social security should have not negative or passive but positive or active functions. Through the positive functions of the welfare state ‘distribution according to needs’ will contribute to ‘production according to ability,’ and the gap between ability and needs will eventually be closed. From the standpoint of virtue ethics, ‘production according to ability’ is not limited to economic production but broadly includes production to maintain and increase cultural capital (see Figure 6.3 in Chapter 6), because human ability is not merely for the production of economic values. Positive social security neither is made possible by constructing institutional schemes nor aims at solving the economic paradoxes between needs and ability, but it demands the reconstruction of the moral and spiritual world. As Figure 6.1 framed the issues, positive social security should also address the moral paradoxes of moral hazards and moral dilemmas. The principles of justice help people cultivate public reason in a democratic process and constitute social solidarity based on rights and duties. The ethics of virtue confirms and exploits the implications of justice on the levels of actual social practice. This means the reconstruction of the citizenship thesis from the viewpoint of human existence. While the social security regime includes the three sources of welfare, namely ‘market (efficiency), the state (justice), and community (excellence),’ it constitutes a part of the three-layered system of the welfare state consisting of ‘capitalism, democracy, and social security.’ What impact does positively oriented social security have on capitalism and democracy, the other components of the welfare state? Capitalism and democracy are the two bases of social security. What underlies the gap between ability and needs in social security is nothing more than a gap between capitalism and democracy. Whereas capitalism is concerned with the ability for production, democracy is with meeting the needs for living. If social security can integrate ability and needs, an important perspective will be gained for the unification of economic and political systems. Whereas capitalism is a hotbed of economic innovation through the ordeal of perennial competition, democracy is a defender of cultural plurality. Whereas capitalism is an economic system, democracy

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maintains that there is value in diverse aspects of social life other than the economy. And whereas capitalism is run by unified motive power through the selection of competition, democracy ensures value pluralism through the maintenance of tradition. Nevertheless, if social security pays attention to the existential nature of human beings and becomes fully conscious of the ideal of excellence to be realized in the various fields of social practice, it will mediate between the ideals of ‘efficiency and competition’ and those of ‘justice and self-respect’ and ultimately act as the coordinator of capitalism and democracy. The mechanisms for coordination are only suggested by a social security system that is equipped with dynamic goals and dynamic means. My hypothesis that social security is an intermediary between capitalism and democracy is demonstrated by the ethics of virtue and excellence.

NOTES 1. For Rawls’s original account of the just saving principle, see Rawls (1971, s. 44). For his revised view, see Rawls (1993, p. 274; 1999a, s. 44; 2001, pp. 159–61). Also see Wissenburg (1999). 2. Nevertheless, it is appropriate to refer to an early discussion of the distinction between social insurance and social assistance: International Labour Office (1942). 3. For an anthology of ‘the Third Way’ debate, see Giddens (2001).

Conclusions: in pursuit of a just and excellent society In this book, we have looked at the economy as a branch of society; it is not independent and self-contained but rather an interdependent system among a set of social organizations. Although its importance cannot be disregarded, the economy is not the highest value for human beings. Although, or even because, the management of the economy and industry is not an easy task, we should ask ourselves two questions: what underlies the economy and what lies beyond it. This was our approach to the economy from the ethical viewpoint, as identified in the Introduction, subtitled ‘Two banks of the river: a metaphor.’ Metaphorically speaking, we envisioned both this and other banks with the strong tides of a river between them and were concerned with improving the flow of the river by reconstructing the two banks. Now we are in a position to answer the two questions cited above.

WHAT UNDERLIES THE ECONOMY? While an economic system operates through its internal mechanism of efficiency and growth, it is supported by social and political systems, although this support is scarcely visible to economists. It is possible that even if an economy is growing rapidly, it is based on institutional rules that are far from democratic, civilized, and just. Because there are potential conflicts of interest among individuals in society, the social institutions and rules have been established to mediate such conflicts. It is the politics of democracy that makes rules. In reality, however, politics is consumed by compromise based on the power structure and the satisfaction of local interests; often debate falls short of the ideal. Despite a remarkable rise of political philosophy, politics generally is in stalemate and crisis. The principle for the resolution of conflict is justice. Democracy is not simply a procedure of participation but a process that should realize justice as its outcome. Although people are accustomed to speaking of values as a battle of the gods in view of the plurality of values and ends, it would be a mistake to believe that all conflicts involving values are insoluble. For 321

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society to survive conflicts between plural values, the most basic value should make their coexistence possible; that is the task assigned to justice. A just society is one that embodies justice in its institutions. It not only enables all people to coexist in spite of differences in nationality, race, religion, belief, sex, age, occupation, status, and so forth, but it also enables them to find values in their life and existence. It is justice that underlies the economy. It is not true that justice is simply antipathy or jealousy toward advantaged persons. Indeed, in an unjust society, a critique of unjust rules might embrace such distortions. In a society with just rules, on the other hand, as risk management for creating opportunity and redressing damage ensures constant resurgence and challenge, inequalities allowed by the Rawlsian difference principle do not entail discontent or jealousy. Through the notion of justice and the institutions that embody it, social solidarity and a moral community are cultivated. Neither is justice a fanciful notion. It is possible that although many people have a deep sense of justice and detect the violation of a rule and an unjust rule, just rules are not necessarily established in society. This is largely because a fraction of people who happen to have social power do not distinguish between the public and private spheres and maintain partisan views on decision-making in the public sphere. If democracy is to realize justice as the outcome of public deliberation, such deliberation must depend on public reason. To acquire public reason, one must understand the moral point of view that makes him depart from self-interest and have a universal perspective. This point of view cannot be learned without education in childhood. For a society that embodies a fair system of cooperation, the moral point of view achieves public reason and social solidarity beyond self-interest, love of family, loyalty to associations, and nationalism.

WHAT LIES BEYOND THE ECONOMY? What can we accomplish with enormous economic wealth? Shall we pursue economic growth, which is ambiguous about human goals, as we have been pursuing the rapid development of new commodities and technologies? Shall we accept the consequent market culture? Although technological innovation is the motive power of economic growth and economic growth is a necessary instrument of material abundance, what matters is what economic growth is for and what material abundance is for. These issues are about what lies beyond the economy. In the primitive stage of economic growth, an escape from poverty is certainly an imperative. Consequently, economic growth becomes an ultimate

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objective as such, without reflecting the ends to which the economy is to serve as a means. Conversely, it is even thought that all actions should serve economic efficiency and business interests. But we should question the purposes of the economy and become conscious of the direction in which the economy should proceed. The economy might appear as a neutral, all-purpose means that is useful for whatever ends may be desired. Moreover, it might be argued that personal interests should determine what is desired. However, the ideas of the economy as a neutral means and of desires as ultimate values have contributed to the proliferation of the business-led type of economy under the guise of consumer sovereignty. Leaving the decision to the market and big business does not mean individual liberty. Indeed, capitalism is a strong engine of growth, but we must ask what the growth is for. The purposes of the economy cannot be defined ahistorically. Considering its purpose amounts to stipulating the character of the economy from the perspective of the history of civilization. The basic character of the economy depends on how a society utilizes its social surplus over personal consumption under the constraint of available resources and output. Industrialized society invests the surplus overconsumption into physical capital for entrepreneurial profits. For a welfare society, it is the source of income for redistribution to the poor. Feudal society used it to build pyramids, palaces, and armies to parade the majesty of rulers. The notion of a social surplus over personal consumption might be inappropriate with regard to the welfare state, because, as the communitarians argue, the satisfaction of socially recognized basic needs is not a residual claimer but the first claimer of resources. The welfare state, through long efforts to establish civil, political, and social rights, has presented a model of society in which justice should prevail. An affluent society is one in which, after justice has been secured, human beings can afford to exercise their capacity to the level of excellence. Every person can live a life that is worthwhile within a framework that allocates the social surplus for human flourishing. Excellence is the goal that an affluent society should strive for. An excellent society is a community in which decency is cherished and a diversity of cultural opportunities is conserved, while creative ability is developed and its intellectual frontier is constantly expanded so that unique contributions to science, arts, thought, culture, morality, and education are accumulated as the legacy of humankind. In view of the fact that such a legacy was produced in the past when the standard of living was not high by contemporary measures, a society of excellence need not be a dream. Excellence is not limited to achievements in particular intellectual fields or to culture and knowledge in the narrow sense, but relates to certain states or activities as a result of the development of properties central to human nature,

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including the realization of human beings as moral persons, of unique lifestyles, and of an honorable society. This is the notion of culture in the broad sense. Excellence or perfection is to establish the identity of a society with respect to culture in the broad sense. John Ruskin, in his bitter criticism of classical economics, declared that the objective of economics is the advancement of life: There is no wealth but life. Life, including all its powers of love, of joy, and of admiration. That country is the richest which nourishes the greatest number of noble and happy human beings; that man is richest who, having perfected the functions of his own life to the utmost, has also the widest helpful influence, both personal, and by means of his possessions, over the lives of others . . . The maximum of life can only be reached by the maximum of virtue. (Ruskin [1860] 1997, p. 222)

This transcendental criticism from the art critic was completely neglected by orthodox economists, but must have been an obsession to economists with humanity in mind. Justice is the foundation of an affluent society and excellence is the objective of an affluent society. Efforts beyond national boundaries in the cause of a just and excellent world will be the basis of gaining trust and respect in the world as a society’s contribution to world civilization. We must try to reconstruct the social order on the basis of these two leading principles. An ideal for the new era will not come from the economy as such. The philosophy of the welfare state that I have described in this book interprets the values of justice and excellence as controlling the direction in which efficiency and growth of the economy should be headed. The outlook for the twenty-first century is monotonously colored by the revolution of information technology. However revolutionary it may be, it is a technique for the economy after all. We must control the river of the economy, which has been infused with the innovations of information technology from both banks. The economy is the world of the good that enables the satisfaction of desires. The two banks of the river of the good are the ethics of justice and excellence.

THE ETHICS OF JUSTICE AND EXCELLENCE: A SUMMARY In our system of ethics, the fundamental theses maintained by the ethics of justice and excellence are threefold: (1) from the viewpoint of ‘right,’ all persons have equal moral values. The equality of moral values has precedence over all personal differences, and therefore persons merit equal

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respect and consideration; (2) from the viewpoint of ‘good,’ all persons have equal rights to self-respect and autonomy. Self-respect and autonomy are guaranteed by the individual efforts of self-realization among a diversity of persons; and (3) from the viewpoint of ‘virtue,’ all persons have equal rights to the satisfaction of basic human needs that make compatible the equality and diversity of persons. Needs must be satisfied to educate human beings so they can utilize their capacities, and thus ensure opportunity and security and foster innovation and responsibility in the face of risks and uncertainties. The integration of needs fulfillment and ability is the primary goal of a society based on the ethics of justice and excellence. The task of the welfare state is to achieve these moral theses. We have defined the welfare state as a three-layered system consisting of ‘capitalism, democracy, and social security.’ The welfare state is a comprehensive system. It refers not only to the social security system – a sub-model that emerged in the twentieth century – but also to the social system of justice and citizenship that has been accomplished by the accumulation of ‘civil, political, and social rights’ over three centuries in the pioneering countries of humankind. As is obvious from the sources of welfare (the ‘market, family, and state’), the state is merely part of the welfare regime. The function of the state is to deal with the consequences of the de-marketization and de-familization of welfare. In the current discussion of the welfare crisis, the fiscal burdens on the state are likely to be overemphasized. The solution is not to return the state’s burdens to the market and family, thereby finding a refuge in a small government. Rather, in a crisis of the welfare state, the role of the government must increase. Beyond establishing ‘civil, political, and social rights,’ government should broaden the horizon for a social system of excellence beyond that of justice. Justice only mediates conflicting interests by referring to the notion of needs. In contrast, the notion of needs takes a step forward to the notion of abilities, for needs specify the properties of human beings that are instrumental to the promotion of their abilities. Therefore, we must suppose explicitly the value of excellence that prescribes the development and exercise of human abilities beyond the value of justice. From this perspective, we can reconstruct the welfare state as a whole. In reconstructing the welfare state, the problem is to consider the desirable intergenerational succession of capital stock in the broad sense with reference to the overall process in which investment in ‘human capital’ will produce ‘cultural capital’ through the accumulation of ‘economic, natural, and social capital.’ The method used to approach this problem is no longer a closed iron triangle of ‘politics, bureaucracy, and industry’ but deliberative democracy based on the public reason of its citizens. Without it, there

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would be no way to initiate the institutional reform of welfare for a new era. People are asked to create social values by participating in public discussions of how to generate the five kinds of capital stock, instead of remaining absorbed in the private sphere. If deliberative democracy consciously depends not only on the ethics of justice (right) but also on the ethics of excellence (virtue), it will be able to reconcile the disintegrating relationship between needs and abilities, and mediate the conflicting relationship between capitalism and democracy in a new fashion. The key to this reconciliation and mediation is the notion of ‘positive social security,’ and my conclusions for the philosophy of the welfare state in terms of this notion are described under the following three headings: public reason, dynamic goals, and dynamic means. (See also Figure 6.1 in Chapter 6.) Public Reason The understanding that social security is a fair system of social cooperation should be established as the substantive content of ‘public reason.’ This is what the public political culture of democracy demands. What is required for welfare reform is not the retrenchment of social security from the standpoint of market fundamentalism but the introduction of the notions of market reciprocity and moral duty into the scheme of universal social rights. The concepts of benefits and burdens and of duties and rights must be incorporated into a system of social security through an objective incentive mechanism and through the subjective consciousness of public reason. Dynamic Goals Social security must have ‘dynamic goals’ that positively contribute to the expansion of human capabilities in social practice, of opportunities in life, and of human achievement. The ethics of virtue gives a moral foundation to a dynamic programme that makes a shift ‘from the lack of ability to the excellence of ability.’ Implementation of this idea will transform the function of social security from a safety net into a springboard. Dynamic Means The quality of social security services must be improved so they can function as the ‘dynamic means’ to dynamic goals. This is the role of the competitive mechanism within the scheme of social security. Because those services for maintaining and improving human abilities and qualities such as health and education are hard to observe and evaluate, they are under

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public control. But it is essential to introduce competitive incentives into both the demand and supply sides of the services under the public framework of social security. Public reason, dynamic goals, and dynamic means all relate to the essential functions of the state, community, and market as the sources of welfare respectively. A reconstruction of the welfare state demands such a combination of functions; in other words, positive social security requires the implementation of dynamic communal goals and dynamic competitive means in collective activities of social security under the presupposition of public reason in a political process.

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Index adverse selection 221 Agassi, J. 102 ageing 272, 274–8 ageism 275–6, 283, 308 Akerlof, G.A. 220 Albert, M. 171 anarchism 180 Anderson, E. 38 Aoki, M. 171 Archimedes 57 Aristotle 46, 94, 104, 108, 112, 114, 117–18, 159 Arrow, K. 190, 193 Atkinson, A.B. 216, 284, 288 Austrian school of economics 35, 97, 153 autonomy 4, 39, 122–3, 125 Avineri, S. 130 Baron, S. 177 Barr, N. 269 Barry, B. 210 Barzel, Y. 177 basic income 288 basic need 116–17, 215–20, 223, 226, 269, 299, 318–19, 323 Becker, L. 177 Beckerman, W. 294 Beetham, D. 212 being (existence), see person Benett, W.J. 111 Bengtsson, T. 278 Benhabib, S. 212 Bentham, J. 52–3, 60, 77, 80, 201 Berlin, I. 82, 84–8, 107, 130 Beveridge, W.H. 194, 222, 316 Blair, A. 315 Blank, R.M. 289 Bohman, J. 208, 212 Bosanquet, B. 118 Bourdieu, P. 179 Bowler, P.J. 177

Bradley, F.H. 118 Brennan, S. 270 Bulmer, M. 270 bureaucracy 196–200 Butler, R.N. 275 capability (ability) 78, 112, 115–17, 119, 128–9, 223, 317–20 and excellence 112, 115–18, 129, 323–4 and functioning 115–17, 128–9 and need 117, 223–5, 317–20 capitalism 2–6, 133–77 and democracy 183–90, 225–8, 239–40, 319–20 two models (American and Japanese) 171–7 care 248–59 ethics of 256–9 Carter, A. 177 Castles, F.G. 250, 269 Chapman, J.W. 130 Checkland, E.O.A. 286 Checkland, S.G. 286 citizenship 213–14, 217, 248, 251–5, 259–64, 319, 325 civil minimum 216 Clark, J.M. 157 Coase, R. 144, 165–7, 174, 186, 280 Coase’s thesis 144, 165–7 Cohen, G.A. 88–9 Cohen, J. 209–10 coherentism 60–61, 68–9 common good 94–5, 99–106, 112–14, 120, 246–7 common-sense morality 106, 111, 257, 261 Commons, J.R. 25 communism 223 communitarianism 46–7, 76, 83, 91–2, 97–102, 104–6, 147, 231 on capitalism 244–5 347

348

Index

on democracy 245–6 on welfare state 246–7, 249 community 91, 94–107, 112–15, 120, 147, 163–7, 244–7 competition 134–6, 142, 148–57, 285, 289, 374 as cooperation-type game 153–5, 163–7 as record-type game 153–4, 158–9 as struggle-type game 153–4, 160–62 virtue of 151, 158, 262 consequentialism 51–2 consumer sovereignty 54 contingency (luck) moral 92–4 social vs. natural 63, 74, 162–3, 281 contractarianism 39, 46, 51, 61–5, 77–8, 82–3, 97–102, 111, 237–41 controversy with communitarianism 47–8, 96–102 on capitalism 239–41 on democracy 74–6, 239 on welfare state 70–73, 237–41, 249 cooperation 163–4, 166–7, 169–76, 197–8 corporate governance 171–5 cream-skimming 221 Crisp, R. 80, 130 cultural pluralism, see pluralism value 4, 23, 26–7, 120, 126–7, 129, 133 culture 1, 27, 120, 133–4, 178, 267, 323–4 Daly, M. 250 Darwall, S. 130 Darwinism 161–2 Davis, J.B. 52 Deakin, N. 269 de-familization and de-marketization, see social security Delaney, C.F. 130 Delmar, M. 251 democracy 306, 16, 65–9, 71–2, 85–6, 105, 178–212 as competitive system 194–201 constitutional vs. procedural 208 deliberative 206–12 prebiscitary 196–7

three dimensions of (i.e. functional, logical, normative) 189 democratic equality 72, 75, 92 ‘Democratic-Welfare-Capitalism’ 214 demographic transformation 274 De-Shalit, A. 130 desire 31, 58, 146–7 Dewey, W. 70 dictatorship 86 difference principle 63–5, 74–5, 93 discourse ethics 205–7 Dore, R. 171 Doyal, L. 217 Dryzek, J.S. 212 Duff, R.A. 280 Duhem, P. 70 duty 58, 123, 259, 262, 318 Dworkin, R. 60, 130 Easterlin, R.A. 44 economic growth 2, 35–6, 273–4, 285 economic value, see value economics 42–6, 52, 55–6 as moral science 13 branch of (i.e. economic statics, dynamics, sociology) 54–5 descriptive vs. prescriptive 54–5 economy 1–2, 33–4 and morality 13–17, 36–46 and politics 16–17, 178–80, 183–90 efficiency 1–2, 21, 105, 139, 220–22 allocative vs. informational 137, 139 vs. excellence 41–2 vs. justice 7, 38–47, 49–79, 108, 240, 317–18 Elshtain, J.B. 254 Elster, J. 212, 188–9 employee sovereignty 172–3 entitlement theory 89, 242 equality 4, 76–9; see also democratic equality; liberal equality; moral equality equality of opportunity, formal vs. fair 63–4, 74–5, 93, 117 equilibrium 54–6, 99–100 Erikson, E.H. 258 Erikson, J.M. 258 Esping-Andersen, G. 230, 248–9, 252–3

Index ethics system of (i.e. act–good, institution–right, being–virtue) 19–22, 30 see also morality Etzioni, A. 94, 130, 244–5 Evensky, J. 177 excellence 5, 21–2, 39–42, 46, 105, 107–8, 112, 124, 128–9, 218–20, 323–6 excellent goods 109, 120, 157–8 excellent society 5, 64, 122, 323–6 externality 34, 135–6, 279–80 Falkingham, J. 299 fallibilism 209–10 family 147, 230–31, 244–5, 249–59, 262, 293, 296 Feldstein, M. 219 feminism 247, 250–52, 254, 260 Fine, B. 177 Fishkin, J.S. 212, 303 foundationalism 68 Frazer, E. 244 Freeman, S. 80 French, P.A. 130 Frey, B.S. 43 Fried, J. 177 Friedman, M. 162, 186, 241–3 Fukuyama, F. 164, 170–71 funded system vs. pay-as-you-go system 295, 297, 300–302 Furubotn, E.G. 177 Galbraith, J.K. 159–60, 186 Galston, W.A. 130, 270 game (sport) 148–9 three elements in (i.e. record, struggle, cooperation) 153–71, 197–8 see also competition Gemeinschaft vs. Gesellschaft 102–4 gender 248–59, 275 generability 258, 268, 303 generation 293–6 German historical school of economics 42, 97–100 Gibbard, A. 210 Giddens, A. 315–16, 320 Gilligan, C. 256–7

349

globalization 271–2, 284, 287 good 7, 19, 21–2, 40–41 and goods (commodities) 7, 33–4, 36, 38–9 and resources 35–8 and right 30–31, 38–9, 41–2, 46, 50, 82, 96 and virtue 41–2, 108–10, 114, 318 internal vs. external 30, 108–10, 113, 1120, 124, 245 instrumental vs. intrinsic 30–31 two kinds of plurality of (i.e. individual difference and difference in quality) 37–42, 78–9 Goodin, R.E. 212, 237, 269–70, 282 Gough, I. 217 Gray, J. 86, 130 Green, T.H. 22, 46, 118 Grunebaum, J.O. 177 Gutmann, A. 210, 212 Haakonssen, K. 246 Habermas, J. 205–7 Hannah, L. 283 happiness (well-being) 43, 58, 78, 115, 264–9 paradox of 44 Hardin, G. 284 Hare, R.M. 25 Harrod, R.F. 47, 109–10 Harsanyi, J.C. 235 Hart, H.L.A. 30, 49 Hayek, F.A. 84–6, 137–42, 146, 160–62, 169, 199, 233, 241–3 Heater, D. 260 Hegel, G.W. 94, 118, 145–7, 151, 224, 270, 231 Held, D. 212 Held, V. 270 Hicks, J. 52 Hills, J. 299 Hirsch, F. 109–10 Hirschman, A.O. 43, 172 historicism 95 Hobbes, T. 145, 152 Hodgson, G. 180–81 holism institutional vs. psychological 102–3 methodological 46, 99–102

350

Index

human flourishing 119, 124 human nature 32, 112, 119–20 Humboldt, W. von 193 Hume, D. 294 Hurka, T. 118–19, 125 Hutchison, T.W. 98 ideal observer 53, 234 ideology 32, 121 ignorance 137, 233–5 veil of 61–2, 95–6, 238–9, 294, 297–8 impartial spectator, see ideal observer imputation 35 incentive system 136–7, 141–2, 148, 286, 289–92 incommensurability of good 38; see also good, two kinds of plurality individual, aspects of 56–60, 82–3 individualism 46, 99–102 institutional vs. psychological 102–3 methodological 46, 54, 99–100 possessive 145–7 information system 137–42, 198–9 inheritance 75, 305–7 innovation 2, 35–6, 40, 49, 120, 158–9 institution 6, 17–18, 180–82 and culture 1, 27, 133–4, 178 and value 5–9, 133, 228–30, 248–9, 264–6 as capitalism, democracy, and social security 5–9, 71–2, 122, 133, 214–15, 225–8, 238 ethics of 133–4 social objective of 149–53, 255, 267 two meanings of (i.e. social norm and social system) 6, 17–8, 133 institutional economics 17, 25, 82, 180–81 instrumentalism 54, 69–70 insurance 73, 93, 220–21, 235, 238–9, 282, 297 interest 26–8, 31, 33–4 of social coexistence 28–30, 71 intuitionism 111 invisible hand 14, 135, 149, 182, 189 iron triangle (i.e. politics, bureaucracy, industry) 6, 186, 198–9, 211, 239, 290, 325

Jevons, W.S. 52 Jones-Finer, C. 269 justice 2–4, 21, 60–65, 76–9, 219, 321–5 and excellence 41, 129, 241 as fairness 62, 210, 238 as violence 76–8 circumstance of 294 intergenerational vs. intragenerational 293–308 local 96 political conception of 65–7 procedural 127, 140, 161, 236 two principles of (Rawls) 62–4, 93, 127–8, 185, 203–4, 239 Kant, I. 20, 25, 60–61, 87, 92–4, 111, 118, 123–5, 144, 218, 237, 261, 280–81, 290 Kantian constructivism 61–2, 205 Kelsen, H. 184 Keynes, J.M. 13, 47, 72–3, 159, 193–4, 233, 270, 306–7 Knight, F.H. 149–50 Koh, H.H. 212 Kohlberg, L. 168, 256 Kohn, A. 156 Kotlikoff, L.J. 302, 305 Kreps, D.M. 224 Krouse, R. 75 Kruschwitz, R.B. 130 Kukathas, C. 80 Kuznets, S. 274 Kymlicka, W. 260 laissez-faire 15 Laslett, P. 212, 303 Lee, R.D. 304 Leibnitz, G.W. 118 liberal equality 72, 75 liberalism 85–6, 241, 243 agonistic 86 political 25, 65–7, 202–4 libertarianism 46–7, 76, 83, 88–90, 144, 166, 241–4, 271, 287 on capitalism 242–4 on democracy 243–4 on welfare state 241–2, 249 liberty 4, 22–3, 116–17, 140, 183–4 and efficiency 39–40, 134–5, 193–4 and virtue 4, 7, 39–40, 81–130

Index basic (political) 62–4, 76, 187 democratic 85, 107 idealist 85 negative vs. positive 84–8, 92, 94, 107, 145, 151, 184, 243 perfectionist 85, 88 republican 85 welfare 85 life cycle 297–8 Lilla, M. 130 Lin, M. 177 Lindbeck, A. 291 Lindsay, A.D. 208 Lippmann, W. 211 Locke, J. 89, 144–5 Luhmann, N. 165, 167, 169 Luhmann’s thesis 167 Mach, E. 70 MacIntyre, A. 47, 94, 108–10, 113–15, 120–21, 124, 157, 163, 171, 179, 245, 257 Macpherson, C.B. 145, 201 Maine, H. 104 Malthusianism 274 Mandeville, B. 14, 182 Mann, M. 121 Margalit, A. 130 Margalit, E.U. 130 market 2, 54, 134–43, 145–6, 148–53, 160, 166–7, 284–92 as system of information, incentives and ownership 136, 140–42 failure 221, 236, 240, 243, 280 moral property of 134–7, 149–53 universality of 135–6, 280 Marshall, T.H. 71, 73, 213–14, 240, 260, 270 Marx, K. 46, 118, 223, 318 McPherson, M. 75 Meade, J. 72–3, 75 means test 287, 312–13 Menger, C. 97, 100 merit 286–7 meritocracy 144, 148, 160 Methodenstreit (controversy between history and theory) 47, 97–102 Mill, J. 201 Mill, J.S. 52–3, 59, 107, 112, 151–2, 193, 201, 210, 241

351

Miller, D. 84–5, 130 Mitchell, D. 250, 269 Modigliani, F. 305 Mommsen, W. 212 Montes, L. 177 Montesquieu, C.L. de S. 172 Moon, J.D. 224 Moore, G.E. 53 moral development theory 168–9 moral dilemma 224, 226, 292 moral equality 76–9 moral hazard 223–4, 226, 285, 290–92 moral judgment category of (i.e. good, right, virtue), see value term object of (i.e. act, institution, being) 19–22, 83, 262–4 moral luck 90, 92–3 moral person 59–62, 66, 78–9, 83, 90, 122–3, 202–3, 218, 261–3, 280–81 moral philosophy 7, 19–22, 45–7; see also communitarianism; contractarianism; libertarianism; utilitarianism moral science 13 morality 17–18 as principle of norms 18–19 ultimate normativity of 24–5, 28–9 universality of 24–5, 28–9 Mulhall, S. 47, 130 Munzer, S.R. 177 Musgrave, R.A. 128 Myrdal, G. 277–8 Nagel, T. 92 natural liberty 72, 75 Nelson, B. 254 Neo-Kantianism 26–7, 29–30, 267 Nietzsche, F.W. 46, 118, 122 Nino, C.S. 206, 212 Noddings, N. 256 non-consequentialism 51 normalization 219–20 Norman, W. 260 North, D.C. 17 Nozick, R. 84, 88–90, 115, 144–5, 242 Nussbaum, M.C. 117–18, 269 Nyberg, S. 291

352

Index

O’Connor, J.S. 228, 252 Ohlsson, R. 278 Okazaki, T. 175 Okin, S.M. 254 Okuno-Fujiwara, M. 175 Olsen, G.M. 228 organization 138, 165–9, 186, 244–5 intermediate (Keiretsu) 170, 174 original position 61–2, 66, 125–6, 201–3, 234–5 Orloff, A.S. 252 Ortega y Gasset, J. 85 overlapping consensus 66, 68, 70–72, 192; see also partitioning consensus ownership 143–5 and person 88–94 system of 137, 141–7 Palmore, E.B. 275 Pareto, V. 31–2 Pareto principle (optimality) 22, 52, 134–6, 143, 190–91, 290 Pareto’s triangle 31, 35 Parfit, D. 119 participation income 288 partitioning consensus 68, 106 Pasek, J. 294 Pateman, C. 253, 255 paternalism 84, 239, 249, 310 pay-as-you-go system 300–302 Peck, J. 287 Pejovich, S. 177 Pelczynski, Z. 130 perfectionism (ethics of perfection) 53, 96, 107, 117–30, 147, 193, 195, 217–18, 307 and liberalism 125–7 elitist vs. liberal 121–5 narrow vs. broad (intrinsic vs. revealed) 119, 120, 125 Perry, R.B. 26–7, 29, 31–2 person and liberty 83, 87–90 and ownership 88–94 as being (stock) 19, 39, 58–9, 82–3, 94, 112, 115, 119–20, 142–3, 146, 217–20, 261, 318–20 Pettit, P. 246

Piaget, J. 168 Pierson, C. 214–15, 269 Pigou, A.C. 34, 229 Piper, A.M.S. 70 Plato 24, 30, 118, 211 pluralism cultural (multiculturalism) 211–12, 260 reasonable 65, 69, 191–3, 210 value 25, 37, 71, 87, 105–6, 123, 188–94, 211–12 plurality of good 37–42, 78–9; see also incommensurability of good Pocock, J.G.A. 246 Poincaré, H. 70 Polanyi, K. 14, 214 politics 178 and economy 178, 183–4, 189 and morality 66–7, 184–5, 187–8, 202–3 pooling of talent, see social common asset poor law 249, 286 population policy 278 problem 277–8 positional goods (oligarchic wealth) vs. material goods (democratic wealth) 109 Posner, R.A. 237 possession, see ownership possessive personalism vs. possessive individualism 146–7 Postema, G. 80 practice (social) 108–10, 112–13, 119–21, 163, 171, 179 price 34–5 barometric vs. parametric function of 139, 141, 199 private society vs. social union 90–91, 115, 166 privatization 286, 288 property-owning democracy 74–6, 239, 305; see also welfare-state capitalism prudence 2 public issue 4, 179–80, 203, 277 public opinion 210–11 public reason 6, 16, 68, 88, 201–7, 208, 241, 262, 291–2, 326

Index public sphere vs. private sphere 4, 85, 88, 107, 178–83, 185–6, 192, 202, 214, 262, 291 public virtue (political) 67, 126, 246, 261–2 Putnam, R. 164, 170 Rabelais, F. 223 Rake, K. 250 Rasmussen, D. 130 rational individual 54–8, 181 life plan 78–9 vs. reasonable 60–62, 122–3, 167, 201–3, 210 rationalism, constructive vs. evolutionary 137 Rawls, J. 7, 19, 23, 25, 59–80, 89–96, 101, 104–5, 113–15, 118, 122–8, 130, 144–5, 162, 168, 185, 191, 201–2, 204–10, 212, 214, 217–18, 233–4, 237–8, 240–42, 249, 261–3, 281, 294, 303–5, 320 Raz, J. 123 realism vs. instrumentalism 54 Reamer, F.G. 270 reciprocity 73, 156, 203–5, 209–10, 224, 238–9, 259 recognition 204, 209 Rees, A.M. 270 reflective equilibrium 19, 25, 61, 68, 205–7 general vs. full 207 narrow vs. wide 205 regulation 15–16 Rehg, W. 208, 212 republicanism (civic humanism) 246 resources 33–5, 38–9, 41–2, 128–9 responsibility perspective vs. retrospective 280, 286 private vs. social 279–85 Richardson, H.S. 80 Rickert, H. 26 right 19–22 and good 36, 50–51, 60, 67, 77, 96–9, 106–7, 114, 317–18 and rights 36, 41, 107 and virtue 41, 67, 96, 107, 113–14, 257–8

353

rights 36, 39, 41–2, 50, 79, 106, 123 civic, political, and social 213–14, 260–62, 281, 318, 323 to equal respect and consideration 60, 79, 259 to live 219 Riley, J. 236 Riley, J.W. 276 Riley, M.W. 276 Ripstein, A. 280 risk 73–4, 215, 217, 219, 226, 238–9, 282, 297, 311–12, 316 matrix 316–17 Robbins, L. 47, 52 Roberts, R.C. 130 Robson, W.A. 270 Rosanvallon, P. 298 Rousseau, J.-J. 183 Ruskin, J. 46, 324 Russel, B. 109–10, 157, 255 Ryan, A. 177 Sandel, M.J. 91–2, 94, 106 saving fair 303–4 for bequest 304–8 life cycle 299, 304–8 scarcity 35–6, 38, 223 Schmoller, G. von 17, 97, 101 Schnabel, F. 85 Schuller, T. 177 Schultz, W.J. 136 Schumpeter, J.A. 15, 46, 79, 118, 120–21, 149, 158, 179, 183, 186, 189, 194–6, 198–201, 212, 225, 290 Scitovsky, T. 46 self dominant (owning) vs. subordinate (owned) 87–8, 91, 112, 127, 145, 162, 243 embedded vs. unencumbered 94–6 narrative 110 noumenal vs. phenomenal 93 self-ownership 88–94, 142–6, 162–3, 242 self-realization 119, 123, 147, 216–19, 225–6 self-respect 62–4, 76, 78–9, 124–7, 210, 262, 287

354

Index

and autonomy 121–5, 127 and excellence 124–5 Sen, A.K. 31, 38, 51, 56, 76, 78, 115–17, 128–9, 191, 193, 195, 212, 214, 217 separateness of person 78–9 shame 287 shareholder sovereignty 172–3 Shionoya, Y. 17, 42, 46, 79, 98, 100, 121, 130, 194–5 Siaroff, A. 252–3 Sidgwick, H. 52–3, 57–8, 111 Silvers, R.B. 130 Simon, R.L. 149 Slote, M. 130 Slye, R.C. 212 Smith, A. 14, 134–5, 182 social capital 164, 170 social choice theory and impossibility theorem 190–91 and liberal paradox 191 social common asset 74, 91 social contract, see contractarianism social insurance vs. social relief 308–15 social investment state 316 social primary goods 62–4, 67, 71, 77–9, 104, 128–9, 185, 191, 217 social security 2–6, 64, 71–3, 76, 215–28 as de-marketization and defamilization 248–9, 253, 266, 279, 283, 296 as ideal type vs. practical type 239, 297–300 as safety net vs. springboard 64, 76, 215–16, 218, 226, 244, 269, 283, 307, 318, 326 positive 226, 247, 315–20, 326 value structure of 213–28 social solidarity 2, 5–6, 228, 239, 242, 246–7, 259, 298, 300, 322 Socrates 24 Solow, R.M. 48, 291 Spinoza, B. de 118 spontaneous order 16, 100, 138–40, 234 Starr, P. 288 Statman, D. 130 Sterba, J.P. 237 stock

view of person, see person, as being (stock) view of society (i.e. cultural, economic, human, natural, social capital) 266–9, 304 vs. flow 19, 267 Stuzer, A. 43 Swaddling, J. 154 Swedberg, R. 98 Swift, A. 47, 130 taxis vs. cosmos 138 thesis vs. nomos 140 Third Way 15–16, 316–17 Thomas Aquinas 118 Thomas, W. 236 Thompson, D. 210, 212 Thomson, D. 302 Throsby, D. 120 Timmins, N. 223 Tönnies, F. 102–4, 114, 167 totalitarianism 86 transaction cost 141, 143, 165, 167 trust 163–71, 245, 257 cost 165–7 personal vs. system 169, 298 Uehling, Jr, T.E. 130 ultimate end (i.e. utility, rights, capability) 20–21, 58 utilitarianism 51–3, 39, 46–7, 51–3, 57–8, 60, 65, 77, 79, 82–3, 126, 143, 231–7 classic vs. modern (average) 234–5 hedonistic vs. ideal 53, 58, 120 on capitalism 236–7 on democracy 235–6 on welfare state 231–5, 249 rule vs. act 233–4 utility (welfare) 33, 50–56, 82–3 interpersonal comparison of 52 vs. rights 50–51, 61 value 23, 26–8 amoral 23 cultural 4, 23, 26–7 economic 26, 29, 33–6, 38, 139 moral (ethical) 23–5, 28–31, 36, 38 scientific 23–4, 29–32 value relevance 27, 32

Index value term basic (i.e. good, right, virtue) 19–22, 58, 67 operational (i.e. efficiency, justice, excellence) 8, 20–21, 40–46 Van Parijs, P. 288 Veblen, T. 25, 82–3, 159 Veenhoven, R. 44 virtue (excellence) 3, 20–22, 39–46, 105, 108–15 and capability (human nature) 112, 119, 128–9, and good 21, 40–41, 105–7, 122, 318 three types of (i.e. ethics of common sense, human nature, community) 111–13, 118, 261 Waldron, J. 177 Wall, S. 171 Walzer, M. 94, 104, 246 Weber, M. 27, 150, 196–201, 212 Weber–Schumpeter thesis 196–7, 199–201 Weibull, J.W. 291 Weintraub, J. 212

355

Weithman, P.J. 80 welfare economics 55 fundamental theorem of 134–6, 290 welfare regime (i.e. conservative, liberal, social democratic) 230, 248–9, 264–6, 272–3, 278, 287 welfare state (i.e. capitalism, democracy, social security) 3–6, 75–6, 213–15, 229 crisis (reconstruction) of 6, 15, 215, 228, 271–3 welfare-state capitalism 75, 239, 283 welfarism 49–51, 105, 112, 143 well-being 78–9, 108, 115, 119, 139 well-ordered society 59, 61, 66, 122, 201–4 Wicksell, K. 310 Williams, B. 51, 92 Windelband, W. 26 Wissenburg, M. 320 Wolfenberger, W. 219 workfare 286–8, 291–2 worst-off 63, 76, 79, 93, 238 worthiness of living 43, 122–5