Development as Freedom (42 page)

Take the old example of the “voting paradox,” with which eighteenth-century French mathematicians such as Condorcet and Jean-Charles de Borda were much concerned. If person 1 prefers option
x
to option
y
and
y
to
z
, while person 2 prefers
y
to
z
and
z
to
x
, and person 3 prefers
z
to
x
and
x
to
y
, then we do know that the majority rule would lead to inconsistencies. In particular,
x
has a majority over
y
, which has a majority over
z
, which in turn enjoys a majority over
x
. Arrow’s theorem shows, among other insights it offers, that not just the majority rule, but
all
mechanisms of decision making that rely on the same informational base (to wit, only individual orderings of the relevant alternatives) would lead to some inconsistency or infelicity, unless we simply go for the dictatorial solution of making one person’s preference ranking rule the roost.

This is an extraordinarily impressive and elegant theorem—one of the most beautiful analytical results in the field of social science. But it does not at all rule out decision mechanisms that use more—or different—informational bases than voting rules do. In taking a social decision on economic matters, it would be natural for us to consider other types of information.

Indeed, a majority rule—whether or not consistent—would be a nonstarter as a mechanism for resolving economic disputes. Consider the case of dividing a cake among three persons, called (not very imaginatively) 1, 2, and 3, with the assumption that each person votes to maximize only her own share of the cake. (This assumption simplifies the example, but nothing fundamental depends on it, and it can be replaced by other types of preferences.) Take any division of the cake among the three. We can always bring about a “majority improvement” by taking a part of any one person’s share (let us say, person 1’s share), and then dividing it between the other two (viz., 2 and 3). This way of “improving” the social outcome would work—given that the social judgment is by majority rule—even if the person thus victimized (viz., 1) happens to be the poorest of the three. Indeed, we can continue taking away more and more of the share of the poorest person and dividing the loot between the richer two—all the time making a majority improvement. This process of “improvement” can go on until the poorest has no cake left to be taken away.
What a wonderful chain,
in the majoritarian perspective
, of social betterment!

Rules of this kind build on an informational base consisting only of the preference rankings of the persons, without any notice being taken of who is poorer than whom, or who gains (and who loses) how much from shifts in income, or any other information (such as how the respective persons happened to earn the particular shares they have). The informational base for this class of rules, of which the majority decision procedure is a prominent example, is thus extremely limited, and it is clearly quite inadequate for making informed judgments about welfare economic problems. This is not primarily because it leads to inconsistency (as generalized in the Arrow theorem), but because we cannot really make social judgments with so little information.

Acceptable social rules would tend to take notice of a variety of other relevant facts in judging the division of the cake: who is poorer than whom, who gains how much in terms of welfare or of the basic ingredients of living, how is the cake being “earned” or “looted” and so on. The insistence that no other information is needed (and that other information, if available, could not influence the decisions to be taken) makes these rules not very interesting for economic decision making. Given this recognition, the fact that there is
also
a problem of inconsistency—in dividing a cake through votes—may well be seen not so much as a problem, but as a welcome relief from the unswerving consistency of brutal and informationally obtuse procedures.

In terms of the example considered at the beginning of
chapter 3
, none of the arguments used to make a case for hiring either Dinu or Bishanno or Rogini would be usable in the Arrow informational base. Dinu’s case rested on his being the poorest, Bishanno’s case on his being the unhappiest and Rogini’s case on her being most ill—all of which are external facts outside the informational base of the preference rankings of the three persons (given Arrow’s conditions). In fact, in making economic judgments we tend, in general, to use much
broader types of information than is permitted in the class of mechanisms compatible with the Arrow framework.

Indeed, the spirit of “impossibility” is not, I believe, the right way of seeing Arrow’s “impossibility theorem.”
⁴
Arrow provides a general approach to thinking about social decisions based on individual conditions, and his theorem—and a class of other results established after his pioneering work—show that what is possible and what is not may turn crucially on what information is taken into effective account in making social decisions. Indeed, through informational
broadening
, it is possible to have coherent and consistent criteria for social and economic assessment. The “social choice” literature (as this field of analytical exploration is called), which has resulted from Arrow’s pioneering move, is as much a world of possibility as of conditional impossibilities.
⁵

Another point to note, on a related issue, is that the politics of social consensus calls not only for acting on the basis of
given
individual preferences, but also for sensitivity of social decisions to the
development
of individual preferences and norms. In this context, particular importance has to be attached to the role of public discussion and interactions in the emergence of shared values and commitments.
⁶
Our ideas of what is just and what is not may respond to the arguments that are presented for public discussion, and we tend to react to one another’s views sometimes with a compromise or even a deal, and at other times with relentless inflexibility and stubbornness. Preference formation through social interaction is a major subject of interest in this study, and it will be pursued further later on in this chapter and in the next.

It is also important to recognize that agreed social arrangements and adequate public policies do not require that there be a unique “social ordering” that completely ranks all the alternative social possibilities. Partial agreements still separate out acceptable options (and weed out unacceptable ones), and a workable solution can be based on the contingent acceptance of particular provisions, without demanding complete social unanimity.
⁷

It can also be argued that judgments of “social justice” do not really call for a tremendous fine-tuning precision: such as a claim that a tax rate of 39.0 percent is just, whereas 39.5 per cent would not be (or even that the former is “more just than” the latter). Rather, what is needed is a working agreement on some basic matters of identifiably intense injustice or unfairness.

Indeed, the insistence on the completeness of judgments of justice over every possible choice is not only an enemy of practical social action, it may also reflect some misunderstanding of the nature of justice itself. To take an extreme example, in agreeing that the occurrence of a preventable famine is socially unjust, we do not also lay claim to an ability to determine what
exact
allocation of food among all the citizens will be “most just.” The recognition of evident injustice in preventable deprivation, such as widespread hunger, unnecessary morbidity, premature mortality, grinding poverty, neglect of female children, subjugation of women, and phenomena of that kind does not have to await the derivation of some complete ordering over choices that involve finer differences and puny infelicities. Indeed, the overuse of the concept of justice reduces the force of the idea when applied to the terrible deprivations and inequities that characterize the world in which we live. Justice is like a cannon, and it need not be fired (as an old Bengali proverb puts it) to kill a mosquito.

I turn now to the second of the identified reasons for skepticism of the idea of reasoned progress, to wit, the alleged dominance of “unintended” consequences and the related doubts about the possibility of reasoned and intentional advancement. The idea that unintended consequences of human action are responsible for many of the big changes in the world is not hard to appreciate. Things often do not go as we plan. Sometimes we have excellent reasons for being grateful for this, whether we consider the discovery of penicillin from a leftover dish not intended for that purpose, or the destruction of the Nazi party caused by—but not intended in—Hitler’s military over-confidence. One would have to take a very limited view of history to expect that consequences match expectations as a general rule.

There is, however, nothing embarrassing in all this to the rationalistic approach underlying this book. What is needed for such an approach is not any general requirement that there should be no unintended effects, but only that reasoned attempts to bring about social change should, in the relevant circumstances, help us to get better results. There are plenty of examples of success in social and economic reforms guided by motivated programs. Attempts at universal literacy, when seriously undertaken, tend to succeed, as they have in Europe and North America, and also in Japan and elsewhere in East Asia. Epidemics of smallpox and many other illnesses have been eliminated or sharply reduced. The development of national health services in European countries has made health care available to most citizens in a way it was not earlier on. Things are, often enough, exactly as they seem, and indeed more or less what they seemed to people who worked hard to get there. While these success stories have to be supplemented by accounts of failures and deflections, lessons can be learned from what went wrong, in order to do things better next time. Learning by doing is a great ally of the rationalist reformer.

What then do we make of the thesis allegedly championed by Adam Smith and definitely advocated by Carl Menger and Friedrich Hayek that many—perhaps most—good things that happen are typically the unintended results of human action? The “general philosophy” underlying this adulation of unintended consequences deserves serious examination. I shall begin with Adam Smith, both because he was the alleged originator of this theory, and also because this book does have a strongly “Smithian” character.

We have to begin by noting that Smith was deeply skeptical of the morals of the rich—there is no author (not even Karl Marx) who made such strong criticism of the motives of the economically well placed vis-à-vis the interests of the poor. Many rich proprietors, Adam Smith argued in
The Theory of Moral Sentiments
, published in 1759 (seventeen years before
Wealth of Nations
), pursue, “in their natural selfishness and rapacity,” only “their vain and insatiable desires.”
⁸
And yet others can, in many circumstances, benefit from their actions since the actions of different people can be productively complementary. Smith was not going to praise the rich for consciously doing any good to others. The thesis of unintended consequences
involved the continuation of Smith’s skepticism of the rich. The selfish and the rapacious are led, argued Smith, “by an invisible hand,” to “advance the interest of the society,” and this they achieve “without intending it, without knowing it.” With those words—and a little help from Menger and Hayek—“the theory of unintended consequences” was born.

It was also in this general context that Smith outlined his much cited discussion—already quoted earlier—of the merits of economic exchange in
Wealth of Nations:

The butcher sells bread to the consumer, not because he intends to promote the consumer’s welfare, but because he wants to make money. Similarly, the baker and the brewer pursue their respective self-interests, but end up helping others. The consumer, in her turn, is not trying to promote the interests of the butcher or the baker or the brewer, but to pursue her own interest in buying meat or bread or beer. However, the butcher and the baker and the brewer benefit from the consumer’s search for her own satisfaction. The individual, as Smith saw it, is “led by an invisible hand to promote an end which was no part of his intention.”
¹⁰

The championing of “unintended consequences” took off from these rather modest beginnings. Carl Menger, in particular, argued that this is a central proposition in economics (though, he thought, Smith did not get it fully right), and later on, Friedrich Hayek developed this theory further, describing it as a “profound insight into the object of all social theory.”
¹¹

How significant a theory is this? Hayek was much taken by the elementary fact that important consequences are often unintended. In itself, this fact can scarcely be surprising. Any action has very many consequences, and only some of them could have been intended by the actors. I go out of the house in the morning to post a letter. You see me. It was no part of my intention to cause that you see me on the street (I was just trying to post a letter), but this was a
result of my going out of the house to the mailbox. It is an unintended consequence of my action. To take another example: The presence of a multitude of people in a room causes it to be heated up and this can be quite important in an overheated room in which a party is being held. No one intended to heat up the room, but together they might yield just such a consequence.