“If love would reign over the world, all laws would be dispensable”
This is a quote by Aristotle, with which I would like to start this column – borrowed from Christian Felber’s book, I must admit.
How incentives work
In our series of dialogues, we question if we need to reset and reform capitalism, and how. Should, and can governments make laws for companies to make markets contribute more, or more effectively to human flourishing? Or are firms themselves able to connect ‘the common good’ with ‘profit maximization’? This has all to do with incentives in markets.
To illustrate how incentives in markets often work, I’ll give you an insight in me buying bananas. Supermarkets offer me different types of bananas, reflecting different economic mechanisms and ideologies. I rank them from the cheapest to the most expensive:
- the unbranded banana (somewhat 1 euro for 5 or 6 pieces, often from large-scale plantations).
- banana from a big company such as Chiquita, or Dole banana (often facing economies of scale)
- a Fairtrade banana from a fair trade company (usually the one with the smallest shelve and the most expensive).
Alternatively, I could go elsewhere to buy a super-fair-trade, super-expensive banana from a cooperation, based on solidarity. In The Netherlands, I’m referring to – for example – Odin and the World Shops, that most likely to appeal to Dr. Felber’s ideas about a good economy.
I’m always in doubt what to do. Intuitively, I’m in favor of the most ethical one, but it is more expensive. And don’t the other ones just face economies of scale, what’s wrong with that?
Walking the talk
My choice has implications for what I can do with my life. Buying the cheapest bananas, will enable me to save more and spend it on other goods. I can do so, even if I am aware that the company offering these bananas may not provide the banana producers with a decent income, and/or provide good working conditions.
In the literature, a well-known mechanism has been described: people say they want to contribute to what can be considered ‘the common good’: they love having decent working and exchange conditions for everyone. But once people are in the supermarket other ideas start reigning their mind – they don’t walk their lovely talk. After all, money defines a great deal of the quality of our lives.
This mechanism occurs in many markets, and company levels as well. Think only about “greenwashing” or “fairwashing”
Should, and how can we change this, given how incentives typically function?
Can we avoid the troubles of current capitalism?
I’m curious to know the position of both speakers tonight: Christian Felber and Luigi Zingales. Should we start requiring big companies to ensure decent working conditions for producers, so that these producers can have a ‘good life’ as well? Or should we implement an entirely different system in which only solidarity-based cooperatives exist, rather than profit-maximization companies? And what about the ‘freedom of enterprises’?
And finally, I’m especially eager to know if whatever market system one implements, the troubles of current capitalism won’t occur again. After all, Aristotle already implied, that love doesn’t rule the world.
I’ll end with what I have decided recently on which banana to buy. I’m now taking ideological turns: one week the Fairtrade banana, the other week the cheapest, and every now and then I visit a cooperative shop. I’m curious to know if that will change after tonight’s dialogue.
Books by the guests in this episode: