Security and Global Property Rights

Security and Global Property Rights by Sheldon Wein published in Humanomics, Volume 16, # 2, 2000 (pages 41-51) Abstract This paper examines David Hume's argument that, among its other virtues, a society of just persons enhances our security. It is argued that, in the circumstances we find ourselves in today, Hume's account of the manner in which living in a just society serves to increase the security of those who inhabit the society requires that governments, in addition to providing for the conditions needed to protect private property rights and to foster an open market, have a duty to provide for social justice for their citizens. It is suggested that a scheme of welfare rights, similar to those advocated by Ronald Dworkin in his account of equality of resources, offers the best model for contemporary Humeans to pursue. Introduction There is a substantial body of evidence holding that the fastest, most reliable way to improve both the quality and length of the lives of those living in economically less developed societies is for the citizens of such societies to further respect for the rule of law and for their governments to adopt policies confined to those necessary for the promotion and protection of some form of open market economy. It is usually held that this requires that we conceive of property rights in a very strict--nearly absolute--way and that we encourage a culture of respect for property rights so construed. Thus, defenders of global entrepreneurialism seek theories of justice which hold that private property rights and freedom of contract are among the most important requirements of justice. As I hope to show, a natural historical home for those inclined to defend global entrepreneurialism is to be found in the work of Adam Smith's good friend, David Hume. As we will see, Hume holds that justice consists (solely) in the protection of private property and those measures needed to ensure that there is provision for the rigorous enforcement of private contracts. Once I have established that the Humean tradition provides a natural starting point for those who wish to provide a philosophic defense of global entrepreneurialism, I turn to the task of showing what, if anything (beyond the protection of property and contract enforcement), this view of justice requires. In this part of the paper I argue that justice demands that communities make some provision for ensuring the welfare of those who fare badly in entrepreneurial societies. The resulting theory of distributive justice will, I suggest, serve to ground what might be called an entrepreneurial welfare state. The entrepreneurial welfare state offers as an additional incentive to market participation (beyond those normally provided) protection to all participants in a market economy up to a level to which it would be rational to purchase such protection. Affinities with Ronald Dworkin's insurance-based reasoning supporting his equality of resources model of distributive justice are explored. Recently, we have seen the collapse of the Soviet Union and the subsequent expansion of capitalism, the spread of open markets, the globalization of business ventures, and the rapid emergence of fledgling democracies throughout Central and Eastern Europe, Central and Southeast Asia, Latin America, and, most recently, in some of the post-colonial countries of Africa and the nations of the Middle East. In the wake of these events people have increasingly seen the need for principles of justice which can guide those who are constructing societies committed to entrepreneurial values in regions which have considerable--sometimes dramatic--needs for social welfare provisions. And, in an era where the dogmas of deconstructionism are dying and the professoriate is performing postmortems on postmodernism, it is widely recognized that a rigorous and vigorous theory of justice which can balance business and social interests in a principled way is more than a matter of academic interest, but is vital to the task of ensuring that values flourish in the tolerant and pluralistic societies we must all work to construct. Hume's account of justice is an attractive place to look for a firm foundation for principles of justice for emerging open democratic societies for several reasons: his account is pluralistic, allowing that both self-interest and benevolence play important roles in motivating social stability; it includes strong commitments to property rights and freedom of contract; and it is non-fanatical allowing that different circumstances will require different solutions and that peoples must seek pragmatic ways to better their societies. My arguments here are aimed simply to show that, in the circumstances of the early part of the new millennium, Hume's theory requires us to be committed not only to private property rights and to open market societies but also as a matter of justice and for the very same reasons to social welfare provisions. As I hope to show, the deep values inherent in Hume's account of justice lend a deeper appreciation of Thomas Jefferson's observation that "Whenever there is, in any country, uncultivated land and unemployed poor, it is clear that the laws of property have been so far extended as to violate natural right.” Humean Justice In what has become the classic discussion of the matter, Hume argues that justice is an artificial, rather than a natural, virtue and that it is one which is likely to arise only in (what have come to be called) the Humean circumstances of justice. By a natural virtue, Hume simply means virtues, such as kindness, which we approve of even in the absence of a general practice to do that type of act and where the motive for such acts is one people naturally have. Acts which are instances of artificial virtues--for example the keeping of promises--are thought of as valuable only when there is a convention or widespread practice of doing such acts (the approbation attaches to the act qua instance of a practice thought to be valuable; the act by itself need not be valuable), and where the motive for such acts is not natural but is acquired by living in a society where such practices are promoted. Hume holds that the conventions which are a needed part of our acquiring such artificial virtues can arise only in circumstances where there exist both moderate scarcity, so that cooperation is necessary for humans to have sufficient resources to flourish, and limited altruism combined with the capacity to constrain our behavior to conform to socially adopted rules, so that humans will find it possible to set up the conventions needed to improve their conditions. It is this combination of objective circumstances (the moderate scarcity) plus subjective circumstances (our capacity to formulate and follow rules we have given ourselves) which allows for the artificial virtue of justice to arise among humans. In particular, Hume observes that human beings are a rather odd species. We are unlike those animals (Hume uses the example of the lion) which have both huge appetites and prodigious means to satisfy their appetites. Nor are we like those animals (sheep being Hume's example here) who have modest appetites and correspondingly meager means of satisfying those appetites. While other animals have abilities and capacities sufficient to fulfill their needs, humans seem to have appetites and needs which far exceed their natural capacities to supply what they need. Hence, while other animals are naturally able to survive in the wild, humans are ill-prepared to live in a state of nature. So, the question naturally arises, why are there still humans around, why has the species not died out? Hume's answer is worth quoting at length: 'Tis by society alone he is able to supply his defects and raise himself up to an equality with his fellow-creatures, and even acquire a superiority above them. By society all his infirmities are compensated . . . and . . . leave him in every respect more satisfied and happy, than 'tis possible for him, in his savage and solitary condition, ever to become. When every individual person labours a-part, and only for himself, his force is too small to execute any considerable work; his labour being employ'd in supplying all his different necessities, he never attains a perfection in any particular art; and as his force and success are not at all times equal, the least failure in either of these particulars must be attended with inevitable ruin and misery. Society provides a remedy for these three inconveniences. By the conjunction of forces, our power is augmented: By the partition of employments, our ability encreases; And by mutual succour we are less expos'd to fortune and accidents. 'Tis by this additional force, ability, and security, that society becomes advantageous. A Treatise of Human Nature.1 The artificial virtues and the system of law needed to sustain a society of naturally vulnerable humans with very limited powers are, according to Hume, "the stability of possession . . . its transference by consent, and . . . the performance of promises. 'Tis on the strict observance of these three laws, that the peace and security of human society entirely depend". And he adds that these "laws, however necessary, are entirely artificial, and of human invention; and consequently that justice is an artificial, and not a natural virtue".2 Hume calls these the "three fundamental laws of nature". Oddly enough, Hume says absolutely nothing more about which principles of justice or what sort of legal arrangements would in fact best serve to overcome the three inconveniences which afflict us in our savage and uncultivated condition. This is odd because Hume has already made the essential observation necessary to enter into a profitable exploration of this matter. Hume's discussion of the nature of artificial virtues mirrors the contemporary distinction between the aim of a theory (its theory of value--what it takes to be of value to the agents using the theory) and the policy component of the theory (its theory of choice, which tells agents which choices to make in order to best achieve that which the agents value).3 It is important to note that the connection between the aim and the policy components of a theory--between its account of value and its account of rational choice--is not a conceptual link but a causal or statistical one. If you are rational you adopt that policy which best attains that at which you aim. The policy of aiming directly at that which you most value may be, but frequently is not, the wisest policy in terms of being the one most likely to get you what you seek. Now, since every theory of justice holds that we should arrange things so as to enhance our efficiency, permit our talents to flourish, and make us more secure, and since all remotely plausible accounts of justice hold that humans should keep their promises, respect the property of others, and interact in ways that are unforced, the real issues have to do with what social arrangements, within the many possible ones that embody these virtues, are best suited to our circumstances.4 The question remains, what system of property, what market arrangements, and what support for promising are the best for securing the ends Hume has identified.5 Here I want to focus on the idea that, without society, we are very insecure because any failure in our projects leads to "inevitable and ruin and misery" (including, perhaps, premature death). Because the costs of failure are so severe in a society-less world, people must be unduly cautious. Entrepreneurial ventures which, except for the fact that their failure leads to disaster, would otherwise be rational gambles must be forgone. But with society we gain security. Society acts as insurance against such failures, partially by reducing the likelihood of failure but also by reducing the magnitude of suffering that goes with failure. Ventures which would otherwise be too risky to embark upon suddenly become rational gambles and the associated positive externalities are reaped by other members of society. Given this, it would make sense that the better a society provided for such security, the better the society. I suggest then that whichever principles will best serve to overcome the inconveniences Hume has identified are the principles that we should adopt. Consider how we might deal with people who fail to keep their promises, particularly promises concerning property. What should we do with people who cannot pay their debts? (Clearly, we have to allow people to go into debt, for to fail to do so would be to constrain the ways in which we transfer property by consent.) Imagine that you consent to transfer your property to me now and I in turn promise to transfer to you some property of mine later. But later I transfer nothing to you. How am I to be dealt with? Obviously, some penalty must be imposed or people will not be able to rely on the conventions of buying and selling. But what penalty? One possibility is that we allow you to seize my property. But what if I have none, or an insufficient amount to cover my debt to you? Well, we could put me in the Poor House. Or we could allow me to declare bankruptcy. Clearly, a Humean must choose one of these alternatives (or some related option), for otherwise a significant benefit of having society is lost. But which alternative? Hume seems to have thought that this choice just like choosing which side of the road to drive on: it does not matter which we choose as long as we all coordinate to drive on the same side. But in fact this choice is not like that at all, for some of the coordination solutions are much better than others.6 For instance, almost every historian of economic progress will tell you that, in terms of enhancing our security (including the security of lenders), the introduction of bankruptcy laws to replace the Poor House laws which preceded them was a substantial improvement from the point of view of the lawabiding citizen.7 If we care to make judgments about what social arrangements will best serve to enhance our "force, ability, and security", then how should we make such judgments? Obviously, only those arrangements which meet "the three fundamental laws of nature, that of the stability of possession, of its transference by consent, and of the performance of promises", are going to be in the running for "'Tis on the strict observance of these three laws, that the peace and security of human society entirely depend; nor is there any possibility of establishing a good correspondence among men, where these are neglected". But since every plausible theory of distributive justice meets these three fundamental laws, the question remains. Hence, we are forced to make educated decisions about which legal and social arrangements will best serve to enhance our "force, ability, and security". Happily, there are a host of things we can do (and have done) to reduce the adverse consequences of failure in our projects. First, and perhaps most significant, is the introduction of limited liability joint stock companies. From their inception, one of the most important features of these devices has been to allow for entrepreneurial ventures-ventures which otherwise would be too risky--to become feasible simply because the costs and risks can be shared among investors and because each investor's liability is limited to what she has invested. But there are a host of other legal arrangements which serve to make it easier for members of society to reduce the risks taken when engaging in those activities in which, otherwise, "the least failure . . . must be attended with inevitable ruin and misery". These devices include limited partnerships, holdings jointly and in common, futures contracts, mutual funds, and (most recently) insurance hedges and the extremely sophisticated venture capital contractual arrangements recently pioneered in the United States (and which in the last two decades have been coupled with the largest legal accumulation of capital in human history). But it is not only in the area of private law (that covering the performance of promises and the transference of property by consent) that society has, through its legal system, developed means to increase security by reducing the adverse consequences of failure. Thus, the legally mandated standardized system of accounting practices, the establishment of regulated stock and futures markets, the practice of having the banking system and treasury operate with stable and clearly defined mandates and at arms length from the current rulers--all these serve to make entrepreneurial investment more attractive and the frequency and consequences of failure less burdensome. But there is something special about the example I started with, bankruptcy laws. What preceded bankruptcy legislation was the Poor House laws, and what preceded them was something even worse--the idea that a debtor might have a pound of flesh taken from him were he unable to pay his debts. In each move we see a change society has made away from failure having very severe consequences--misery that is intolerably miserable, ruin that is, well, ruinous--to failure with less severely unhappy consequences. Humeans should applaud this sort of progressive change, for there is nothing inherent in Hume's view of the purpose or origins of justice--the value it serves--which restricts the policies we should adopt in seeking to enhance those values. We should cultivate whatever endogenous preferences best serve us in the circumstances in which we find ourselves.8 Insuring Justice Adam Smith claimed that we can best enhance our productive capacities (what Hume called our "force") through the use of open markets. Market arrangements encourage divisions of labour which increase each worker's specialization and lead to greater productivity. Furthermore, markets (via their invisible hands) solve difficult problems having to do with how to coordinate production with desired consumption, and so they tend to enhance the productive efficiency of each individual. However, as even the most casual observer has noted, free-market societies are not the most secure places. We can do better. The challenge to those who seek to develop a truly unified humanistic economic approach is to find ways to retain the virtues of open, market economies while enhancing the security and dignity of those who participate in such societies. The remainder of this essay suggests one avenue worth pursuing. Recently, Ronald Dworkin has argued for an egalitarian theory of distributive justice which he calls equality of resources. Dworkin begins with the idea that each person is worthy of being treated by her government with equal concern and respect. In noneconomic areas, he argues, this requires both democracy (as the best means of ensuring that each has a roughly equal say in policies adopted by her government) and constitutionally enshrined civil rights protecting citizens against democratic actions which are most likely to involve not treating each with equal concern and respect. Dworkin refers to both the right to equal concern and respect and the concrete rights derived from it as anti-utilitarian rights, as trumps held by individuals against their government. As such these rights allow citizens to veto any social program or action which, if carried out, would result in them receiving less than equal concern and respect, even if that social program or action would increase the general welfare of the community.9 The Humean element here is that, if I hold a right to something, it need not be the case that, in each and every case, respecting that right is going to further the common good. This echoes Hume's claim that repaying debts is a virtue, even though this often requires that someone who really needs the money (or whatever is being re-paid) give it to someone who has no use for it at all. In some cases, the artificial virtue of repaying debts does not pay, but that does show that repaying debts is not a virtue. Dworkin's argument for social welfare provisions--we might say rights against the market--is analogous to his argument for civil rights, rights against democratic majoritarianism. First, he argues that the market is a reasonably good mechanism for treating people as equals. Then he argues that because it is nevertheless not perfect in this regard, people need rights to welfare in order to protect them in those cases where the market treats some with less than equal concern and respect. Properly understood, the market is a good device for showing people equal concern and respect because it prices goods and services according to how much others have to give up, in terms of their values, in order to permit others to consume those resources. Equality of resources provides "that people should pay the price of the life they have decided to lead, measured in what others give up in order that they can do so", and the best device for doing this is the market.10 Put another way, the preferences the market uses to price goods are endogenous to the set of people participating in that market. But despite its virtues, the market does not always treat people with equal concern and respect. Even if we (magically) had an equal or fair distribution to begin with, the market would soon generate inequalities. Now, some of these inequalities are perfectly compatible with equality of concern and respect. If I prefer to consume most of my resources now, while you make yours available for others and they pay you rent for using them, then you will soon have more than me. This is quite proper. But some of the inequalities that markets generate are not acceptable. If I lose all my resources--not because I made bad gambles in the stock market but because chance has hit me with a debilitating and expensive disease--then in a pure market economy I will soon be suffering in misery and ruin. Because allowing those who are struck by such brute bad luck to bear the costs of that luck alone would be to treat them as less worthy than those who were more fortunate, and because this is the way the market treats such individuals, governments concerned with equality will, according to Dworkin, grant people welfare rights against such bad luck. But to what level should people have welfare rights against brute bad luck which might damage them in the marketplace? We must be careful not to set the level of welfare rights too high, for the fortunate are those who must pay the costs of providing for such rights--and we don't want them to be unfortunate because they were so fortunate. But at the same time we must not set the level too low, for the unfortunate do need assistance to overcome their misfortunes. The device Dworkin uses for setting the appropriate level of welfare rights is a hypothetical insurance market. He tells us to ask what risks a rational person would buy insurance against, given the real-life costs of such insurance. In practice, it will be difficult to determine to what extent such transfers ought to be made. Dworkin has not provided us with a detailed account of this. However, we can easily state the minimum amount of such transfers. Governments will transfer money to those worst off so that no one is, through a lack of resources, leading the sort of life which, were he rich and had he chosen to lead that life, would cause us to doubt his sanity. This level of income is, of course, not very high, certainly less than equality of resources demands. But it will serve as a starting point. (Note that it is also not so high that Hume should complain about it, for a just Humean society is supposed to make one more secure than one would be in a wild and uncultivated state.) A Humean should seek to arrange society so that individuals possess welfare rights which--though failures in entrepreneurial ventures are borne primarily by those who undertake such ventures-economic failure leads neither to intolerable misery nor to complete ruin. Such rights will not hamper, but actually encourage, public spirited entrepreneurial activity. On both Dworkin's view and the modified Humean account I have sketched the government will prefer to transfer fungible resources (money) to the least fortunate. It will choose to transfer services (such as medical care, police and military protection, and elementary education) only in those cases where no one who was both rational and in need of them would choose to forgo those services. This is the system of distributive justice that the right to equal concern and respect requires of governments in the developed democracies of the contemporary liberal western world. My suggestion, then, is a simple one. Those concerned to develop and defend a truly humanistic global entrepreneurial society--a society where misery and ruin are minimized and where human integrity yields benefits for all--should create educational systems and develop affective attitudes and legal structures which promote and defend a world where the welfare of workers is in the real interest of business11 Notes Bibliography Choudhury, Masudul Alam 1989 The Paradigm of Humanomics. Bangi: Penervit Universiti Kebangsaan Malaysia. 1994 Economic Theory and Social Institutions. Latham, MD: University Press of America. Coleman, Jules L. 1988 Markets, Morals and the Law. New York: Cambridge University Press. 1992 Risks and Wrongs. New York: Cambridge University Press. Dean, Richard 1997 "A Defence of Constrained Maximization" Dialogue: Canadian Philosophical Review Volume XXXVI, #3, Summer 1997. Gauthier, David 1986 Morals by Agreement. New York: Oxford University Press. Hobbes, Thomas 1991 Leviathan (Tuck, Richard, ed.repr.) NY: Cambridge University Press. Hume, David 1973 A Treatise of Human Nature. (Selby-Bigge ed.) repr. 1888. Oxford: Clarendon Press. 1985 Essays: Moral, Political, and Literary (Indianapolis: Liberty Classics, 1777 & 1985) 1975 Enquiries Concering Human Understanding and Concerning the Principles of Morals. (Third Edition with text revised and notes by P.H. Nidditch, repr. from the 1777 L.A. Selby-Bigge edition.) Oxford: Clarendon Press. Kavka, Gregory S. 1986 Hobbesian Moral and Political Theory. Princeton: Princeton University Press. Narveson, Jan 1988 The Libertarian Idea. Philadelphia: Temple University Press. Rawls, John 1971 A Theory of Justice. Cambridge, MA: Harvard University Press. 1993 Political Liberalism. New York: Columbia University Press. Smith, Adam 1759 The Theory of Moral Sentiments. Oxford: Clarendon Press (1976, edited by D.D. Raphael and A.L. Macfie). 1 A Treatise of Human Nature, page 485. A Treatise of Human Nature, page 526. Hume calls these the “three fundamental laws of nature.” 3 The distinction, of course, pre-dates Hume. Aristotle points out in the Nichomachean Ethics that knowing that happiness is the aim of all rational individuals tells you nothing (or very little) about what policy they should adopt to become happy. J.S. Mill's famous discussion of the paradox of happiness presupposes just this distinction. For an excellent contemporary discussion, see Dean (1997). 4 Note that the principles of justice advocated by liberals and libertarians, by communitarians and feminists, by utilitarians and social contractarians, and by conservatives and social democrats all meet Hume's rather weak standard. 5 Different theories of justice (if implemented) yield very different societies. (That is why people get so worked up about them: they make a big difference in how people's lives go.) 6 Suppose that we all want to play on the frozen lake. It will be better if we all play the same sport than if some play one sport, others another. And it will be better if all of us play soccer than some play soccer and others play hockey. But, given that it is a frozen lake, surely it will be better if all of us play hockey than if all of us play (ice) soccer. Just as the frozen-lake players want to adopt the best of the minimally acceptable coordinated strategies, we want to adopt those social conventions which best serve the very purposes society is there to serve. As it is by increasing our "force, ability, and security, that society becomes advantageous", we should choose those social conventions which best accomplish this. 7 Of course, having the Poor House laws is better than no coordinated solution. For evidence supporting the claim that some economic arrangements which protect property are better than others, examine the accounts explaining why the United States of America, with its superior bankruptcy laws along with it mechanisms for easily raising venture capital in a secure way, has recently done so well, compared with its competitors, in new high-tech industries, particularly those involving biomedical technology and software production. 8 On the distinction between exogenous and endogenous preferences and the importance of cultivating the latter, see Masudul Alam Choudhury (1989 & 1994). 9 See pages xi, 269, 365, and 368 of Taking Rights Seriously. 10 "What is Equality? Equality of Resources", page 294 (italics added). 11 The ideas in this paper were presented in a variety of forms and forums. I thank audiences at the 1996 Atlantic Philosophical Association meetings at Acadia University in Wolfville, at the 1997 meetings of the Canadian Philosophical Association in St. John's, and especially at the Fifth International Conference on Ethico-Economics in Sydney, in October 1997. I am particularly grateful to Nathan Brett, Masud Choudhury, Susan Dimock, Robert Martin, and Thea E. Smith for criticism and encouragement. 2