Markets and morality

Markets and morality

Hugh Oliver
March 20, 2014

In recent years, the interrelationship between ‘free markets’ and morality has become increasingly apparent. Stories of corporate corruption, unethical animal testing and the exploitation of workers in third world countries arise frequently in the media. As the global economy recovers from the trauma induced by the GFC, we are constantly reminded of the devastation that can occur when perverse economic incentives eclipse sound moral judgements.

Regrettably, the landscape of history is no different. Set within the years preceding the GFC, the recent film The Wolf of Wall Street epitomises a period of reckless behaviour, heedless risk taking and flagrant disregard. Similarly, one only has to look to the Ford Pinto case in the 1970s or the Enron scandal in 2001 to observe the negative effects of unsanctioned corporate greed.

Taken collectively, these examples serve to underlie the contention that free markets undermine moral values. But is this really a valid contention?

Conceptually, it is not difficult to see the potential for the free market—a system built almost entirely on self-interest—to corrode morals. Increasingly fierce competition within markets can engender cost cutting mentalities that manifest in immoral behaviour. Information asymmetries arising from deregulated industries reduce the incentives for businesses to make decisions that coincide with society’s interests at large. Negative externalities reflect firms insulating themselves from risk by externalising costs onto third parties. Markets have a propensity to reward and perpetuate self-interest as a normative ideal. Self-interested behaviour appears to equate with higher profit. Socially desirable traits such as altruism and generosity are rewarded to a significantly lesser degree as compared to greed and self-interest.

Moreover, it could be argued that individuals make immoral decisions within the market context that they wouldn’t make outside the market environment. Consumers purchasing clothes manufactured in exploitative third world countries’ conditions often legitimise their decisions in terms of the idea that their payment validates their good intention—no matter how cheaply they obtain the clothes. Firms have been known to pay their employees the minimum wage in order to privatise and maximise (legally) the benefits derived from their workers, while at the same time socialising the costs onto government (and taxpayers) in the form of welfare programs (to supplement the incomes of such workers). To the extent that these immoral decisions can be ascribed to the self-interested incentives nurtured by the free market, the relationship between markets and immorality is powerful.

And indeed there is an alluring simplicity in the conclusion that the free market erodes moral values. The reality is however, that the relationship between markets and morality is much more complex than at first glance.

At most, the relationship is correlative. To contend that the market undermines moral values implicitly presupposes that the market itself is the cause of immoral outcomes. In turn, this implies that the market is fundamentally flawed. However, the market is merely the myriad of institutions that coordinate and facilitate commerce and exchange. If the activities of economic actors result in negative or immoral consequences, explanations should be found primarily in the social institutions and circumstances that underpin the market rather than the market itself.[1]

The underlying moral values and norms of economic actors within the market are shaped by extraneous social, cultural and political variables. Consumers who purchase cheap counterfeit brands from exploited individuals in third world countries often do so in order to conform to trends back home. Does this reflect poorly on the free market, or rather, is it an example of a broader cultural variable (i.e. consumerism) shaping the moral priorities of an economic actor?

As a corollary of the above analysis, it is likely that the imperfections of the market stem from the flaws and motivations of its human participants—rather than its design.[2] The market does not create or cause self-interest. At most, it reinforces self-interested incentives. Yet, it is by no means impossible for the market and morality to co-exist. Vivid examples of immorality in the market—the sub-prime mortgage crisis, the Enron scandal and the exploitation of workers in third world countries by large international firms—represent a fraction of market participants. They are not indicative of the majority. Individuals such as Bernie Madoff, Kenneth Lay and Jordan Belfort were intrinsically greedy; the fact that they allowed unbridled self-interest to govern their decision-making reflected poorly on themselves—not the market.

In fact, for most economic actors, the incentives nurtured by the market are not so overbearing as to supplant their moral judgements. There are many examples of legitimate firms who seek to strike a balance between fulfilling their self-interested objectives and ensuring that their economic activities correspond to societal values. Examples of socially responsible firms include Starbucks, Kellogg’s, GE, Dell, Intel and Nokia. Although the motive surrounding the proliferation of socially and environmentally friendly activities is likely self-interest, these firms (amongst many others) are representative of the growing trend within society towards corporate social responsibility. Importantly, these illustrations bolster the contention that market activities and outcomes are deeply embedded in constantly evolving socio-cultural circumstances.

Ultimately, there is no simple solution to the question of whether or not the free market undermines moral values. Admittedly, the market nurtures and reinforces self-interested behaviour. Yet, it does not flow from this fact that the market itself causes negative or immoral outcomes. Rather, the moral (or immoral) priorities and norms of economic actors are derived from the socio-cultural circumstances that encapsulate the market. Accordingly, the answers to negative outcomes produced within the free market lies in the economic actors themselves, and the prevailing socio-cultural norms that influence the values of those actors.


[1] Qinglian, H, ‘A Templeton Conversation: Does the free market corrode moral character?’ (2008) available at

[2] Ibid.