Sustainability, Social Justice and the Role of the “Impartial Spectator”
Markus H.-P. Müller explores how Adam Smith can help us reconcile the tensions for a rapidly changing economic system.
Sustainability and economic growth are interlinked issues. Achieving more sustainable economic models, capable also of delivering good rates of economic growth, will require achieving an acceptable balance between efficiency (in terms of the allocation of resources to produce output), equity (i.e. fairness) and environmental protection and improvement.
Getting this balance right will be very difficult. There are already justifiable concerns, for example, about the impact of some environmental policies (e.g. forced retirement of high-emissions cars or domestic heating systems) on the affordability of certain goods and services, particularly for lower-income groups. Such worries are compounding existing concerns about income and other wealth divisions (e.g. those related to age) within richer societies. Similar pressures in emerging market economies, which may be under more acute threat from climate change, have encouraged broader questioning of the fairness of not just domestic policy but also the nature of inter-country relationships (e.g. the “Global South” vs. northern developed economies).
Questioning of fairness and thus our trust in the current economic system goes to the heart of our social and political models too. The idea that economic activity must remain subordinate to human ends is deeply historically embedded in the attitudes of many religions towards money, Enlightenment philosophy, constitutional theory, modern secular theories of justice and various strands of 20th century economic thought. Individuals are not merely factors of production or units of consumption, but moral agents whose worth does not depend on their economic utility. From this perspective, money is not an end in itself, but a means whose legitimacy derives from its contribution to social participation and collective welfare. This moral framing has important implications for social justice, which must incorporate a concern for substantive fairness—that is, for the real conditions under which individuals are able to participate in economic life.
While governments may see social justice in an economy as primarily determined by top-down policy, its deep historical roots remind us that policy is not the complete answer. Individuals also influence social justice by their own decision-making processes and actions.
Adam Smith (1723-90) is often cited as supporting the view that that people will always act in their own self- interest: as he famously noted in The Wealth of Nations (WN, 1776) “it is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest." But, as is also well-known, Smith had taken a rather different perspective on individual behaviour in his other earlier major work, The Theory of Moral Sentiments (TMS, 1759). It should be remembered that he continued to revise and republish this earlier work until his death: the later WN was not intended to replace his analysis in the TMS.
In the TMS, Smith introduces his concept of the impartial spectator, an attempt to show the importance of our own conscience in forming the basis for our judgements and helping assure a just outcome. The impartial spectator is a figure imagined by an individual, who serves as a guide to their behaviour, allowing them to see others’ points of view and encouraging what Smith calls “sympathy” (and we today might call “empathy”.) Over the centuries since Smith’s death, commentators have often seen the impartial spectator as a way of discouraging unduly selfish behaviour and thus as an essential brake on capitalistic self-interest – although it could also be argued that the impartial spectator will also encourage us to comply with existing systemic norms.
What relevance does this have to the current debate over the efficiency, equity and the environment debate? First, I think, the impartial spectator reminds us that there has to be a social element to our own decision-making process. This will be particularly important as we get to grips with the challenges posed by AI around social literacy, democratic values and ethical reasoning.
Second, I think that the existence of an impartial spectator can make us sensitive and aware of the views of a wider range of individuals with different options, perceptions, needs and preferences. Smith’s positing of the idea of an “impartial spectator” implies an understanding that if we all made the same assessment of the same options, then there would be no reason for individual decision making. This diversity simply reflects the inherent diversity of nature, of which are a part.
But the impartial spectator still cannot provide an individual with the detailed knowledge how to interact with an economy, how to use the opportunities it will provide and how to decide where they want to want to go. We come back to the problem that the existence of economic market freedoms on their own is not sufficient to guarantee successful system navigation by individuals – participants must also know how to use them. One remarkable aspect of Smith, however, is that he manages to complement a “micro” analysis of individual behaviour (in the TMS) with a “macro” guide to the economic system in which individuals must operate (the WN).
Smith was writing at a time of great social and economic change: an accelerating industrial revolution was changing the social and physical landscape of Britain, European colonialism was continuing to change global economic relations and private attitudes to religion were also evolving too. He attempts to explain ongoing economic trends through historical example and reasoned argument and manages to do this in an open-ended way that is open to further interpretation, while always putting developments in a social context. As a result, his analysis has appealed across the political spectrum – from devout free-marketeers to Karl Marx – and has also encouraged continuing debate over how his views might be relevant to contemporary or new issues. (A search for “Adam Smith and environmental economics”, for example, reveals an ongoing debate about what his views on this subject were – or might have been today.)
I think that this open-ended approach, combined with a focus on the individual and how they manage their own behaviour, will be useful as we seek policy solutions to the problems posed by environmental change, artificial intelligence or economic evolution. Reconciling efficiency, equity and environmental needs will always be difficult and concerns around “fairness” and “trust” are justifiable. We shouldn’t just think about what the desired policy results are: we also need to think about how individuals make decisions, whether they think the policy is fair and to how well they can navigate a changing economic system. Adam Smith understood that economic activity should be seen in the context of social norms – and so should we.
Markus is the Global Head of the Chief Investment Office of Deutsche Bank Private Bank and its Chief Investment Officer Sustainability. He has authored several books and articles on the transformation of society and economies, most recently on “Natur als Kapital: Evolution oder Revolution?” (Natural Capital: Evolution or Revolution?).
Photo by Marvin Sacdalan
