The Distributive Justice of the Market - Part I
The public outcry against executive pay and compensation
followed disclosures of insider trading, double dealing, and
outright fraud. But even honest and productive entrepreneurs
often earn more money in one year than Albert Einstein did in
his entire life. This strikes many - especially academics - as
unfair. Surely Einstein's contributions to human knowledge and
welfare far exceed anything ever accomplished by sundry
businessmen? Fortunately, this discrepancy is cause for
constructive jealousy, emulation, and imitation. It can,
however, lead to an orgy of destructive and self-ruinous envy.
Entrepreneurs recombine natural and human resources in novel
ways. They do so to respond to forecasts of future needs, or to
observations of failures and shortcomings of current products or
services. Entrepreneurs are professional - though usually
intuitive - futurologists. This is a valuable service and it is
financed by systematic risk takers, such as venture capitalists.
Surely they all deserve compensation for their efforts and the
hazards they assume?
Exclusive ownership is the most ancient type of such
remuneration. First movers, entrepreneurs, risk takers, owners
of the wealth they generated, exploiters of resources - are
allowed to exclude others from owning or exploiting the same
things. Mineral concessions, patents, copyright, trademarks -
are all forms of monopoly ownership. What moral right to exclude
others is gained from being the first?
Nozick advanced Locke's Proviso. An exclusive ownership of
property is just only if "enough and as good is left in common
for others". If it does not worsen other people's lot,
exclusivity is morally permissible. It can be argued, though,
that all modes of exclusive ownership aggravate other people's
situation. As far as everyone, bar the entrepreneur, are
concerned, exclusivity also prevents a more advantageous
distribution of income and wealth.
Exclusive ownership reflects real-life irreversibility. A first
mover has the advantage of excess information and of
irreversibly invested work, time, and effort. Economic
enterprise is subject to information asymmetry: we know nothing
about the future and everything about the past. This asymmetry
is known as "investment risk". Society compensates the
entrepreneur with one type of asymmetry - exclusive ownership -
for assuming another, the investment risk.
One way of looking at it is that all others are worse off by the
amount of profits and rents accruing to owner-entrepreneurs.
Profits and rents reflect an intrinsic inefficiency. Another is
to recall that ownership is the result of adding value to the
world. It is only reasonable to expect it to yield to the
entrepreneur at least this value added now and in the future.
In a "Theory of Justice" (published 1971, p. 302), John Rawls
described an ideal society thus:
"(1) 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. (2) 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
savings principle, and (b) attached to offices and positions
open to all under conditions of fair equality of opportunity."
It all harks back to scarcity of resources - land, money, raw
materials, manpower, creative brains. Those who can afford to do
so, hoard resources to offset anxiety regarding future
uncertainty. Others wallow in paucity. The distribution of means
is thus skewed. "Distributive justice" deals with the just
allocation of scarce resources.
Yet, even the basic terminology is somewhat fuzzy. What
constitutes a resource? what is meant by allocation? Who should
allocate resources - Adam Smith's "invisible hand", the
government, the consumer, or business? Should it reflect
differences in power, in intelligence, in knowledge, or in
heredity? Should resource allocation be subject to a principle
of entitlement? Is it reasonable to demand that it be just - or
merely efficient? Are justice and efficiency antonyms?
Justice is concerned with equal access to opportunities. Equal
access does not guarantee equal outcomes, invariably determined
by idiosyncrasies and differences between people. Access
leveraged by the application of natural or acquired capacities -
translates into accrued wealth. Disparities in these capacities
lead to discrepancies in accrued wealth.
The doctrine of equal access is founded on the equivalence of
Men. That all men are created equal and deserve the same respect
and, therefore, equal treatment is not self evident. European
aristocracy well into this century would have probably found
this notion abhorrent. Jose Ortega Y Gasset, writing in the
1930's, preached that access to educational and economic
opportunities should be premised on one's lineage, up bringing,
wealth, and social responsibilities.
A succession of societies and cultures discriminated against the
ignorant, criminals, atheists, females, homosexuals, members of
ethnic, religious, or racial groups, the old, the immigrant, and
the poor. Communism - ostensibly a strict egalitarian idea -
foundered because it failed to reconcile strict equality with
economic and psychological realities within an impatient
timetable.
(continued)