Market matters


They have the power to shape our society

Should apples be sold for a price in a market? Most of us would say yes and would also think it is a silly question. Just bear with the thought for a second. Should human kidneys, for transplantation, be similarly available through a market and on a price?

Now, some of us might pause a bit before saying yes, no or maybe. What about children? Given there are so many available for adoption, should we develop a market for them based on price? I am sure some of you are going to be upset at me for asking this question. But what is the difference between these three ‘goods’? Why do we feel almost no issue with having apple markets, in most normal circumstances, but feel a lot more queasy with notions of markets for kidneys and even more so about market for children?

I want to have an apple. You possess one. If I am willing to ‘pay’ you more than the value you put on the apple, we have space for a transaction. This is the basis of all ‘market’ exchanges. The payment can be in currency terms, the most generalized means of exchange, or it can be in kind. What is needed, for the exchange, is the difference in valuation of a good/service between people with the valuation of the demanders being higher than the valuation of the potential sellers.

The ‘market’ is one way of exchanging the good. There can be many others. Goods/services can be gifts, we have reciprocity based exchanges too, and these exchanges need not be tied to one to one relationships, they can be across communities too (social capital). And subjective valuations, revealed by willingness/ability to pay, is just one way of deciding who gets the good, there can be many other ways of allocation too. It can be on need basis, on first come first served basis, intellectual or athletic ability and/or any other notion of difference in people’s valuation of a good which the seller feels is appropriate to make the basis of exchange.

So, going back to the examples. If people who need kidneys value kidneys differently, as revealed by their willingness to pay, which they do, why not have a market for kidneys. And why not for children? Most recently these issues have been raised very well by Michael Sandel in his book What Money Can’t Buy.

There are a number of issues here. One is about ‘fairness’. The price that we can pay reflects not only our valuation of a good, it reflects our ability to pay as well. I might value a good highly but have limited resources. Should this be allowed to determine what I can and cannot buy? And across all goods and services? Again, clearly most of us are fine with this being the case for a luxury car, but when it comes to life saving drugs, access to emergency health and so on, keeping access on the basis of ability to pay only makes us more uncomfortable.

But fairness is not the only issue here. Markets can be developed wherever we have differences in valuations across people, but should a market be developed for a particular good/service or in a particular instance is a moral decision. It is not just an economic decision. When we decide to have a ‘market’ in kidneys for transplantation we are also saying that a) it is okay to bring this good to a market, b) it is okay to use willingness/ability to pay to deal with allocation, and c) it is okay if we look at this good/service as the kind of good/service that should be allocated through a market. These are clearly not only economic and efficiency related issues.

Adam Smith, when he talked of the invisible hand and markets being efficient, was neither saying that therefore all goods/services should be exchanged/allocated through markets nor was he advocating efficiency as the only criterion that we should have for organizing exchange. He was just pointing out that markets are an efficient way of allocating goods. What we bring to the market still remains a decision, and one that each society has to make.

These are crucially important decisions for a society. Whatever the decisions, they should be made consciously and with full knowledge of possible consequences. A lot of people believe, especially a lot of economists, that the decision to bring a good/service into the market does not have any effect on the valuation of that good or how that good is perceived. This is a huge misconception. If humans learn from their environment, marketing has an effect on people, human perceptions can be altered and manipulated, as psychology has shown, how can the commodification of a good/service not have an effect on its valuation?

If babies are bought and sold, going to the highest bidder in an auction market, how can this not have an effect on how we see parenthood and love and parent-child relations? Clearly these effects have to be taken into account if markets are to be introduced in an area.

We already live in a world where we feel education can be bought and sold. Private providers say if you can pay the fee you can enter, otherwise you can go to the public sector. If we assume private provision of education is of higher quality, not an unwarranted assumption, we are saying that better education can only be available to those who have an ability/willingness to pay.

The same is, by the way, the case with access to health in form of private hospitals and doctors who practice privately. Is this how we want to look at health and education? Is education a commodity that should be allocated on the basis of ability/willingness to pay? Do we want parents and then children to look at education in this way: education as a commodity needed to get the necessary skills, get a good job, and so on? Is this is the only way we should look at education? But then why add the ‘right to education’ in the basic rights section of the constitution of the country?

Markets have been triumphant over the last few decades now. And we have allowed markets to enter many domains that were not open to them before. But, as shown above, this is not a trivial decision and should not be taken lightly. It has the power to shape our society and influence how we and our children view the world. It should be thought about hard and deeply. We will be back with the issue soon.

The writer is an Associate Professor of Economics at LUMS (currently on leave) and a Senior Advisor at Open Society Foundation (OSF). He can be reached at [email protected]


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