Perspectives on Morality and Human Well-Being. Syed Nawab Haider Naqvi
confined to safeguarding “negative freedoms”. Its only task is, therefore, to set rules of conduct that let self-interested individuals pursue freely the ends they value most.
The discussion in this section revolves around: (a) Pareto-optimality, (b) Libertarianism, and (c) Benthamite Utilitarianism; and it shows the moral vacuity of each of these theories. Thus, for instance, Pareto-optimality claims to be totally ‘value free’ and not concerned at all with issues of social justice; libertarianism advocates policy inaction in defence of a special kind of individualistic morality; and utilitarianism manages to maximise social welfare without getting any closer to a just society in which the thought of doing good to others would freely insinuate itself into the minds of men (and women).
i) The “Unimprovability” of Pareto-optimality
A situation is regarded as Pareto-optimal if there is no alternative situation in which at least one person is better-off while none other is worse-off. In other words, it depicts a situation in which the welfare (utility) of someone cannot be increased without reducing the welfare of others. More simply, Pareto-optimality reigns supreme if there is no other state in which everyone can be made better off.5 When there are no ultimate consumers in the model, Pareto-optimality, in a pure production framework, portrays a situation when there is no alternative state of the economy in which there is a greater production of outputs, or a lesser use of inputs [Allen Buchanan (1985)]. A Pareto-optimal state is deemed to be efficient, distributionally neutral, value free, fair and liberal. The central assumption here is that of a well-ordered society – namely, one in which a just distribution of income and wealth has already been accomplished, and where no outstanding socially gnawing interpersonal conflicts of interest strain the rather delicate structure of the free markets. Given this vital assumption, the two fundamental theorems of welfare economics, referred to above, establish a two-way link between Pareto-optimality and competitive equilibrium: assume that all individuals and firms are selfish price-takers. Then every competitive equilibrium is Pareto optimum. Assume, again, that all individuals and firms are selfish price-takers, and that the initial endowments have been suitably redistributed by lump-sum transfers, then Pareto optimum can be achieved by competitive equilibrium [Feldman (1991)]. These theorems, subject to the following restrictive assumptions, prove the above-noted nice properties of Pareto-optimality.6 (i) Market arrangements are the most efficient because all points on the Pareto-efficiency frontier denote an ‘unimprovable’ arrangement of scarce economic resources. But such efficiency guarantees, for whatever they are worth, hold only in the space of utility. (ii) By the same token, these arrangements are the most liberal in the narrow sense that there is no room here for government interference. (iii) Since the very best state of the economy must at least be Pareto-optimal, and in competitive equilibrium, market arrangements must be mutually advantageous and fair. (iv) The Pareto-optimality principle could even be regarded as morally non-controversial, because no one can rationally complain about a move from a Pareto-inferior state (in which someone can be made better off without making anyone worse off) to a Pareto-superior state (in which no one can be made better off without making someone worse off); and because such a move would be in everyone’s self-interest.
On closer examination, however, the story looks too good to be true. The rule will not guarantee efficiency if only a little bit of reality is allowed into the watertight set of assumptions that sustain it. Thus, if public goods (characterised by the jointness of supply, non-excludability, and non-rivalrous consumption) of various kinds must be produced and consumed, the ‘free-rider’ problem (i.e., I do not contribute because others most probably will) and the assurance problem (i.e., when I, though not a freerider, will contribute only if assured that others will also do the same) will not let the market produce these goods. In such situations, appropriate state intervention can almost always improve competitive market (and Pareto optimal) solutions [Stiglitz (1991)]. Similar results will follow if such real-life phenomena as asymmetric information, moral hazard, principal-agency syndrome, multiple equilibria are (as they should be) admitted into the analysis; or if markets are missing or incomplete, or if they are liable to complete breakdown. These problems do not go away even when extended to situations of uncertainty and which involve an inter-temporal resource allocation. This is because such extensions require making some additional heroic assumptions – namely, that (i) all economic agents are identically uncertain; (ii) a complete set of contingent markets exists; (iii) transaction costs are zero. True, with these assumptions the Pareto-optimality rule becomes dynamically valid; but it would amount to little else. In particular, this dynamic version too will still fail to deliver if many key contingent markets (e.g., those for sharing risks) do not exist, the information available to economic agents is not symmetric, etc. To add to the rule’s woes, the second theorem does not settle the issue of distributional equity because Hicksian lump-sum transfers from winners to losers, which must be made to prove the second theorem, are not meant to be actually made. Furthermore, even common sense suggests that “there simply is no way to judge the changes that affect distributions while remaining neutral on distribution questions” [Hausman and McPherson (1993); p. 703].
Indeed, the way Pareto-optimality is defined offers no solution to problems of distributive justice. For instance, this rule is perfectly consistent with a famine-like situation in which some have none or very little while others get all or most, so long as the agony of the starving multitude cannot be relieved without cutting into the ecstasy of the few rich rolling in luxury! Thus, “a society can be Pareto-optimal and still be perfectly disgusting” [Sen (1970); p. 22]. In other words, Pareto-optimality and competitive markets are immiscible with mutually advantageous production, consumption, and distribution arrangements – which is a particularly damning criticism since the gap between the rich and the poor is much too large to be socially, politically and morally acceptable. And, as if to rub salt into the neo-classical’s wounds, Pareto-optimality may even coexist with inefficiency – especially in the non-utilitarian space [Stiglitz (1988)]. Nor is it a big deal that Pareto-optimality depicts unanimity. This is because if unanimity is for the preservation of an unjust status quo, then it would be a recipe for social disaster. Thus, the moral content of the Pareto-optimality principle is next to nil – especially because observing moral principles need not always be (it seldom is) a pleasurable experience for self-seeking individuals. To be able to move towards a reasonably civilised society, a real-life economy had better be delivered from the fetters of the Pareto rule.
ii) Libertarian Morality
The priority of individual liberty, unanimity and impartiality in the specific context of constitution-making are the central moral values espoused by libertarians. Yet here morality misguides human endeavours into the ‘wrong’ channel: it promotes distributive inequity and fails to help the poor.
a) The Priority of Liberty
The central proposition here is that individual liberties must be protected regardless of the consequences of exercising them for individual well-being and social welfare. The idea here is that individual liberty is intrinsically valuable, to be pursued for its own sake. Thus, for instance, unfettered markets are preferred because these are supposed to be the best protection against the dilution of individual liberty. Indeed, capitalism is the most preferred economic arrangement because it means minimising government interference and coercion; it is not just because it most efficiently adds to national wealth [Hayek (1960); Friedman (1962)]. James Buchanan (1985) further shows that unfettered markets are morally superior as well because only these voluntary arrangements can preserve individual liberty while the involuntary arrangement reached through the government cannot. The job of the government is, therefore, to produce a legal infrastructure within which the liberty-preserving markets can function freely. The distributional issues are best settled at the time of making the constitution. At this stage, the individuals responsible for framing the constitution, being uncertain and disinterested about their chances in life, would most likely make rules and procedures which promote a juster distribution of income and wealth and safeguard the interests of the poor in society [Buchanan and Tullock (1962)]. This objective is best achieved by ensuring the