Michael Sandel is, to my mind, perhaps the greatest living political theorist. To get an idea of his breadth, check out his books on Amazon (and read my reviews of a couple). This book, however, is really journalistic social commentary and says nothing new. However, it is great reading, as Sandel has done an excellent job at amassing anecdotes to the effect that more and more of social life takes the form of market interactions.
His main point is that there are moral dimension concerning the way we make agreements and distribute the rights and duties of participating in society, and the use of markets and contracts are only one way, and not always the morally correct way.
My favorite example of this is a sketch on the sitcom Seinfeld, where on Elaine's birthday, George and Kramer give her thoughtful gifts, while Jerry give her a sum of money. When Elaine opens the envelope and sees the money, she exclaims rather incredulously, "Money! You gave me money on my birthday!" Jerry explains that money is better than some other gift, because you can spend it any way you want. Elaine will have none of it. "Money! I can believe you gave me money on my birthday."
How about a personal example? Many years ago, when I was teaching at Harvard, my wife and I had a dinner party for a half dozen Harvard faculty and their spouses. Two days later I received a letter in the mail from one of the guests. The envelope contained a $20 bill (a lot of money in those days) and a note saying "Thank you so much for your hospitality." NEVER in my life was I so deeply insulted. I learned after some inquiries that the gentleman was not mentally balanced, and he took offense to my criticism of s United Nations resolution that Zionism is a form of racism. When I confronted him directly, he accused me of being a CIA agent (this was an insult in those days).
So if you have not ever thought much about when markets are the right way to interact and when they are not, you will get a lot out of this book. Sandel makes the obvious point that paying someone to wait in line for you to get into the fancy museum may be immoral because people should have access to the museum on the basis of their capacity to wait in line, not their wealth. But Sandel does not try to formulate a comprehensive moral structure that tells us when to use markets and when not. I think he should have tried.
Sandel lists two main problems with using markets for social interactions. One is that the poor cannot make use of markets. I do not agree with this critique. The poor are excluded from participation in many aspects of life, and the cure is to eliminate poverty, not to make sure others are also excluded from monetary exchanges. The other is that monetizing social relations leads to a decline in moral sensibility. For instance, if firms can pay for the right to emit carbon into the atmosphere, this erodes the moral obligation we all have to reduce pollution. This is because paying for pollution legitimizes pollution and turns a social decision into a purely private decision.
I think this is just wrong. We do not expect firms in a competitive economy to sacrifice profits on behalf of the environment. We expect firms to obey the laws concerning emissions. The notion that CEO morality can replace regulation is really silly. Of course, when it comes to private life, Sandel's critique has a great deal of force. But we all know that, and few of his examples are this (private) form.
Sandel does not like economists, but his critique of economics is ill-informed and anecdotal. The The idea that not all valuable things should be bought and sold on markets has been known for centuries, certainly since the anti-slavery movement in England, and all mature economists understand this well. The fact that an economist can gain his fifteen minutes of fame once in a while be advocating the suppression of non-monetary gift-giving should not be interpreted as an exercise of brilliant economic argument. We do not have an adequate theory of when the exchange of valuable entities are best left to the market and when they should be regulated by other mechanisms, such as queues, social norms or laws, but the notion that economists have gotten this all wrong is just absurd.
Sandel's point that hat monetary incentives can crowd out moral incentives has been known at least since Richard Titmus's 1971 book, but it is certainly not a cut-and-dry issue. For instance, in 2008 economists Laurence Goette and Alois Stutzer conducted a large field experiment in Switzerland, found that offering lottery tickets increased turnout at blood drives. More generally, Nicola Lacetera and Mario Macis found that donors prefer small in-kind rewards to monetary incentives. On the other hand, economists are often correct in saying that if voluntary contributions do not elicit enough participation, then monetary incentive may do so, despite the fact that they completely drive out moral incentives. By neglecting this point, Sandel gives the impression that wherever the supply of a social good or service is governed by altruistic motivations, is a social evil to replace moral incentives with financial incentives. This is simply not the case, and his critique of Kenneth Arrow and Lawrence Summers is therefore faulty.
In the same vein, economists Ernst Fehr and Klaus Schmidt, in a paper published in the European Economic Review in year 2000, showed that basing a business relationship in part on trust rather than relying upon complete contractual specification, can increase both the efficiency and the fairness of the relationship. This is just one of many contributions by economists that belie Sandel's crude depiction of economic theory. Does he really believe that nothing has changed in the twenty first century?
Sandel is persistent in his critique of economics, but he smears all of economic theory with the broad brush of neoclassical economics of a previous era. The impression given in this book is that it is not worth studying economics, because it is incurably ideological and incapable of dealing with contemporary social policy issues. This, I believe, is simply not the case.
Sandel consistently ignores contemporary economic theory, espectially behavioral economics. This stance leads him to misrepresent a key issue in contemporary economic policy: the role of corruption in economic efficiency and growth. According to Sandel, corruption is a purely moral issue. ``corruption...points to the degrading effect of market valuation and exchange.'' In fact, corruption is a major impediment to economic growth in both developing and developed economies, as stressed by economists Daron Acemoglu and James Robinson in their new book Why Nations Fail.
Sandel's second blind spot is far more serious. By focusing on the marketability of particular things, e misses the larger effect of an economy regulated by markets on the evolution of social morality. Where have movements for religious and lifestyle tolerance, gender equality, and democratic government flourished and triumphed? The answer is in societies governed by market exchange.
Dramatic confirmation of this relationship between markets and morality come from studies of fairness in fifteen simple societies studied by myself and colleagues, described in our book Foundations of Human Sociality: Economic Experiments and Ethnographic Evidence from Fifteen Small-Scale Societies (Oxford: Oxford University Press, 2004). These societies consisted of three hunter-gatherers, six horticulturalists, four nomadic herders, and four small-scale, sedentary farmers in Africa, Latin America, and Asia, and they played standard ultimatum, public goods, and trust games, conducted by twelve professional anthropologists and economists. As in advanced industrial societies, all these societies exhibited a considerable degree of moral motivation, subject being willing to sacrifice monetary gain to achieve fairness and reciprocity goals, even in anonymous one-shot situations. More interest for our purposes, we measured the degree of market exposure and cooperation in production for each of these fifteen societies, and we found that simple societies that regularly engage in market exchange with the larger society have more pronounced fairness motivations. The fact that the market generates a high level of economic inequality is incontrovertible, The notion that the market economy makes people greed, selfish, and amoral is simply and dramatically fallacious.