The Gift: Economic Perspectives

The Gift: Economic Perspectives
[Vinod Anand]
As we know, there are three values (gifts) of economic life: Freedom, Justice and Care.

Let us briefly look at the economic perspective of gift:

In economics gifts have also received some attention too. It will come as no surprise that most economists have done so within their conventional framework of explanation, that is, by explaining gifts both in terms of exchange and in terms of utility maximization. Kenneth Arrow (1972) is a good example, adding also the idea of a social contract:

“Each individual is . . . motivated by purely egoistic satisfaction derived from the goods accruing to him, but there is an implicit social contract such that each performs duties for the other in a way calculated to enhance the satisfaction of all”.
(Arrow 1972: 348)

Why a pure egoist would care about ‘all’ is left unexplained, which starkly illuminates the deficiencies in the rationality concept that Arrow adheres to. Alternatively, Arrow argues that making a gift can increase the giver’s utility because it delivers psychological satisfaction. His explanation is purely subjective and instrumental: the gift is transformed into a self-interested preference that can be traded off against the satisfaction of other self-interested preferences.

George Akerlof (1982) provides a more subtle explanation of gifts in his influential article on gifts in labour contracts but also fails to distinguish gifts from exchange. He provides an explanation of why workers may work harder even when they do not desire or expect promotion, and why employers may pay above-market wages that are higher than a worker’s opportunity costs. Akerlof’s explanation rests on two types of values. First, he recognizes the operation of the value of justice, which he labels as the norm of a fair day’s work. Second, he perceives an expression of carp, which he labels as sympathy, developing among workers and between workers and a firm during the close interactions they have with each other. Akerlof rightly perceives this caring as a gift. The gift on the side of the workers is the work effort in excess of the minimum work standard; the gift on the side of the firm is the payment of above market wages. So we expect an explanation of the mutual gifts in terms of sympathy and relationships and the responsibility expressed in these.

Akerlof does not analyze any further the gifts that he perceived, however. Rather, the rest of his argument undermines his recognition of a gift. He unexpectedly turns his analysis around and starts to conceptualize the mutual gifts between employer and employees as exchanges and as utilitarian. He argues that the workers exchange the extra work effort for extra utility, which materializes in above-market wages. The firm exchanges the higher wages for the higher work effort received. The gift has been explained away; reference to it was only used to distinguish contractual work effort and contractual wages from non-contractual extra work effort and non-contractual extra wages. So, in the end Akerlof explains not gifts but non-contractual exchange. Akerlof remarks himself: ‘Such giving is a trading relationship- in the sense that if one side of the exchange does not live up to expectations, the other side is also likely to curtail its activities’ (Akerlof 1982: 549). In his analysis the difference between exchange and gift has effectively been removed: the gift is explained as extra-contractual exchange.
Kenneth Boulding (1981) did not equate gifts with exchange but confused them with redistribution in his notion of ‘grants’. The problem with mixing values of care and justice in this way is that rules and giving, legitimized coercion and responsiveness, and the collective and interpersonal levels are lumped together as if they were the same. In fact Boulding’s own example of the difference between tax payment and charity illustrates the problem of categorizing care under the label of grants. In his example Boulding shows how distributive rules may be more effective than charity in instances such as tax collection. At the same time his example provides an argument against liberalist and libertarian positions against taxes: he illustrates their legitimacy — stemming from voluntary agreement on the ‘coercion’ of tax payment — when the rates and procedures of tax collection are agreed upon in a democratic manner.
“If governments were supported by purely voluntary contributions, it is highly likely that they would not be supported very well, and the whole society would suffer from insufficient public goods. It is not the element of threat or coercion alone, therefore, that creates a sense of exploitation but the feeling of illegitimacy. The taxpayer does not necessarily feel that he is exploited by a government that he regards as legitimate. But any taxes collected by a government regarded as illegitimate can be regarded as exploitation.” (Boulding 1981: 84)

Building on these insights of freedom, justice and care, and of exchange, rules and gift, it becomes possible to distinguish ontologically each of these values and their internal allocation mechanisms. My working definition of care in the economy, then, is that care is a gift of goods or services that expresses sympathy for the care receiver and implies mutual sharing and sustaining relationships. Exchange then is a quid pro quo transaction that is concerned with the transactors’ dignity and self-fulfillment, implying a competitive relationship to others. Distributive rules are an expression of fairness and imply rights that need to be realized by following agreed rules. Each of these three distinct allocation mechanisms is thus defined in terms of economic actors’ experiences of them, at the level of real life. Definitions of economic behaviour that are descriptive of the level of the system are necessarily different: they do not refer to the ethical capabilities implied in the behaviour in each value domain, Therefore, the term ‘economic transaction’ or ‘interaction’ should be used to describe the level of the system neutral terms that do not imply moral connotations such as sympathy, free choice, or norms.

Each of the three types of values that operate in the economy implies four ethical capabilities: commitment, emotion, deliberation and interaction. For freedom, commitment is to values such as self-esteem and dignity as Peacock and Lasher, Fleurbaey, Gravel and Trannoy have indicated. For justice, commitment is to values like respect and fairness as Rawls, Kolm and Roemer have pointed out. For care, commitment is to values like trust and sympathy as Gauthier and Baier have suggested. The emotions that belong to each type of values may be indicated as pride in the case of freedom, a sense of rightness for justice, and affection in the case of care, though many other feelings can be attached to each of these values, as they vary between cultures. Deliberation is also different in each case. For freedom, deliberation can be characterized as choice, a deliberate choice and not an algorithm; for justice deliberation is involved in the acceptation of legitimacy of a distributive rule, whereas in the case of caring deliberation is expressed in the responsiveness to a caring need. Finally, each type of values can also be characterized in terms of the particular forms of interaction it requires. As has been discussed above these are exchange, rules and gifts in the respective practices of freedom, justice and care. These forms of interaction are located in the market (agora), the state (or other authority) (polis) and the care economy (oikos). This last notion comprises caring in households as well as caring in a community and voluntary activities in associations and co-operatives.
Because of these multiple dimensions present in each type of values operating in the economy these values can no longer be characterized as singular. Therefore we shall use the notion of economic value domains. Each type has its own domain in the economy that
We will refer to as follows (without implying a hierarchical order):
• The economic value domain of freedom,
• The economic value domain of justice,
• The economic value domain of care.
Without commitments actors will not be able to interact rationally with each other. Without commitments to the different types of values that are shared in the economy and that support each other, the economic process will not be able to function in any reasonable way, as 1 have argued in the present chapter. In other words, at the micro level rational economic actors have commitments in each value domain. Together with these commitments they have emotions, they deliberate on the basis of their values, and they interact with others in order to further the values they are committed to. Moreover, the commitments of economic actors to the values they cherish are incommensurable: there is no single scale utilitarian or otherwise — along which the different values that they are committed to can be measured and evaluated. The assumption that actors calculate utilitarian costs and benefits when deciding about buying a new car or having a child is simply not feasible. At the macro level commitments are shared (though also contested) with others who also value freedom, justice and care, rather than ends being subjective and instrumental as neoclassical theory suggests.
Of course the three value domains extend far beyond economic interaction — they have meaning in culture, politics, social life and the like — but I restrict my analysis to their operation in economic life. There the domains have been recognized to exist for a long time (Karl Polanyi 1944, 1968) and to adapt and shift over time. Such changes can be seen for example in the substantial shift of food provisioning from subsistence production in the care economy to production for exchange in the domain of freedom during this century. Or, in an example, we see a change from the distribution of housing in the former USSR from state regulation to the market after the decline of state socialism. Such shifts in economic activity from one domain to another tend to occur endogenously or through policy measures. Often, such changes develop slowly. The value commitments, emotions attached to these commitments, the particular forms of deliberation and of interaction, none of these elements will change overnight (even in what appears to be a sudden change, as in the fall of the Berlin Wall for example).
In the domain of freedom, scarce resources may be allocated through exchange to further individualist values related to the development of one’s talents and self-fulfillment (on this type of ends, see for example, Jon Elster (1986) who argues that economic actors seek self-realization in their activities in the market). Exchange will not further freedom when applied outside this realm, as we can see in cases such as paying taxes or in family home care for an Alzheimer patient. The exercise of individual choice on tax payment or the tax rate to be paid is against the law and can be punished, limiting one’s freedom. To assume that an Alzheimer patient can make her free choices on the medical market will most probably not further the patient’s freedom but make her even more vulnerable;
In the domain of justice, distributive rules may further public values of solidarity and moral duty (see on this type of ends, among others, Amitai Etzioni 1988), for example in collective bargaining. But distributive rules will not further justice when applied outside this realm, for instance in the allocation of jobs or in subsistence farming.
In the domain of care, scarce resources may be allocated through gifts, for example to further the interpersonal values of parenthood and friendship or in unpaid childcare (see on this type of ends, Joan Tronto 1993 and Peta Bowden 1997 among others). But gifts will not further care when applied outside this realm, for example in tenders for road construction (when gifts become bribes) or in the distribution of welfare benefits (when gifts make the welfare system corrupt).

Within each economic value domain, then, values are furthered only when resources are allocated according to the appropriate allocation system for that domain: exchange furthers freedom values, redistribution furthers justice values, while giving furthers caring values (see again Figure 2.1). Within each value domain there is no linear means-ends relationship as assumed in neoclassical economics. Commitment, emotion, deliberation and interaction are mutually related, supporting each other. No constrained maximization is possible since ends and means are not independent of each other. Rather, the interdependence of the ethical capabilities in each domain suggests that behaviour in a domain is circular: it is a matter of contextual classification (Nelson Goodman 1979) or a matter of tacit conventions and meanings (Mary Douglas 1973), pointing to the working of a ‘hermeneutic circle’ the circle can hardly be broken; subject and object are mutually related. It is a circle analogous to the circular flow in textbook economics, the endless flow of real and monetary variables, which cannot be understood outside the logic of the circular economic process. As a consequence, an explanation of behaviour in each value domain must necessarily involve the social context of a domain. It is through an understanding of the context that behaviour can be interpreted. Actor (micro level) and context of each value domain (macro level) are mutually implicated?

Finally, let us stress that the value domains, though operating in society at large, can legitimately be considered as economic, in the sense that each domain involves economic activity. Each value domain allocates scarce resources to contribute to human well-being within its own ethical perspective. The resources are as diverse as physical capital, finance, paid labour, social capital and unpaid labour time. But the resources do not include values. This is important to note since values are implied in the ends and, in the process by which actors pursue these ends, not as resources, as some mistakenly believe. Kenneth Arrow (1972: 355) for example refers to values as resources and Daniel Hausman and Michael McPherson (1996: 220) speak of ‘moral resources’. This picture of values involves a conceptual fallacy that turns values into instruments, as resources are, rather than perceiving them as defining the ends and the process through which the ends are pursued.