Vol. 2 No. 9 (February 1998) pp. 103-106.

FREE MARKETS AND SOCIAL JUSTICE by Cass R. Sunstein. New York: Oxford University Press, 1997. 416 pages. Cloth $35.00. ISBN: 0-19-510272-X.

Reviewed by Jack Knight, Department of Political Science, Washington University in St. Louis.

Cass Sunstein is one of the most prominent legal scholars in the U.S. today. He has written provocatively and intelligently on issues related to constitutional democracy and public law and now turns his sights to the question of the role of free markets in a democratic society. This is an especially important and controversial issue in the late 1990's as the influence of economic analysis and market reasoning continues to grow, in both the intellectual and political arenas. But Sunstein offers a creative and persuasive challenge to this growing influence. His challenge engages free market advocates at many levels: the foundations of economic analysis of law, the effects of markets on non-economic phenomena (especially rights), and the implications of governmental regulation on market activity. While many of the ideas that Sunstein introduces are similar to those presently proposed by others, the fact that he has organized these ideas in one volume and established these issues as relevant for the contemporary debate is a major contribution. He makes the challenges coherent and pertinent and he significantly broadens the research agenda on the relationship among law, social norms, markets and democracy.

The book is organized in three parts. In the first section Sunstein offers a set of essays that develops the theoretical framework with which he builds his analysis of markets and governmental regulation. He focuses there on such basic concepts as preferences, rationality, social norms, social roles, social well being and value. Here Sunstein develops his argument about the fundamental importance of social norms for understanding individual decision making and the incentive effects of legal regulation. In the second section Sunstein considers a set of questions about the role of rights in political and economic activity. In doing so he demonstrates the breadth of his interests, addressing such issues as the effects of the market on race and sex discrimination, the implications of the First Amendment for the revolution in communication technologies, the unintended consequences on political equality of campaign finance reform and the various ways in which property rights can be instantiated in the new constitutional democracies. In the third section Sunstein turns his attention to an analysis of the implications of government regulation on economic activity. Here he weighs the relative merits of government versus market approaches to various aspects of economic activity, especially on issues related to health and the environment.

Sunstein offers a number of important arguments, both about the ways in which we study individual choice and the law and about the policy implications of legal intervention into economic and political affairs. To show how these different types of argument are related in Sunstein's view, I will briefly highlight what is at stake in the debate about how we conceptualize individual decision making. Sunstein's main theoretical contribution relates to the fundamental importance of understanding the effects of social norms on individual decision making. He contrasts his conception of the role of social norms with what he takes to be the standard rational choice account of decision making that undergirds the economic analysis of law. The standard rational choice account, as defined by Sunstein, treats preferences as fixed and stable. Individual choice is a function of an actor's preferences and of her beliefs about the available alternatives from which she must choose. To the extent that social norms enter into this account it is as a constraint on the feasible set of available alternatives. That is, social norms affect the incentives available to the actor, affect the values of the different alternatives.

Sunstein argues for an alternative conception of individual decision making that gives a larger role to social norms and directly challenges the standard conception of rational decision making. He builds his account on the arguments of Laurence Lessig who has developed a theory of the expressive function of law. On Lessig's account law and norms express fundamental values and beliefs about how people think social life ought to be organized. Through this expressive function social norms affect choice in a number of ways; Sunstein states these effects as follows:

We might stress here that people's behavior is a function of, among other things, the INTRINSIC VALUE, to them, of the particular good in question; the REPUTATIONAL EFFECTS of having or failing to have that good; and the CONSEQUENCES FOR SELF-CONCEPTION of having or failing to have that good. Social norms influence reputational effects and consequences for self-conception. (43)
For Sunstein this leads to the following conclusions about the ways in which we analyze individual decision making, conclusions that imply changes in the standard rational choice conception. First, preferences are not natural or fixed; they are affected by many social factors. Therefore, we should give greater attention in our research to questions of preference formation and change. Second, individual choice is a function of social context. On Sunstein's account this fact leads to a major distinction between his conception and that of the rational choice approach: while rational choice explanations place primary emphasis on individual preferences, Sunstein thinks that the primary emphasis should be on the social context, of which social norms are a major component. Third, some of the most important social norms in a society relate to basic values of fairness and justice. Therefore, we should incorporate attitudes about justice and fairness in our conceptions of individual decision making. Fourth, there are many, often conflicting, conceptions of justice held by the members of any society. This raises serious problems of incommensurability of goods and values across individuals, problems that undermine our ability to adequately calculate the aggregate measures of social welfare and efficiency on which economic analyses of law base their conclusions.

Sunstein's analysis of the importance of social norms is a salutary challenge to the standard economic analysis of law. He is correct in his assessment that the rational choice approach has given insufficient attention to social context in general and social norms in particular: "Far too little attention has been given to the place of norms in human behavior, to the relationship between norms and law, and to the control of norms as an instrument of legal policy." (34) But one should not conclude from Sunstein's argument that the critique completely undermines the value of the rational choice perspective. And Sunstein himself acknowledges that there is still merit in the approach. Here it is important to understand how rational choice theory can and cannot adequately accommodate these conclusions. On the one hand, the substantial contributions of the recent work on social, political and economic institutions from within the rational choice paradigm have significantly enhanced our understanding of the influence of social context on individual and collective choice. On the other hand, advocates of the rational choice approach have not demonstrated either the willingness or the ability to adequately consider Sunstein's primary theoretical focus, preference formation and change.

With this conceptual framework Sunstein undertakes an empirically rich analysis of the relative effects of government regulation and markets on individual decision making and thus on economic and political outcomes. His general policy conclusions are grounded in his insistence on the importance of social norms:

I urge that behavior is pervasively a function of social norms; that changes in norms might be the best way to improve individual and social well-being; and that government deserves to have, and in any case inevitably does have, a large role in 'norm management.' (34)
Here Sunstein exploits the idea that norms affect preferences to support the policy argument that law can, and should, be used as a tool to shape individual preferences towards socially-beneficial goals. Such a claim challenges classical liberal notions about the autonomy of individual preferences: I want to explore the question whether a contemporary democracy might not sometimes override the private preferences and beliefs of its citizens, not in spite of its salutary liberalism but because of it. It is one thing to allow for and to affirm competing conceptions of the good; it is quite another to suggest that political outcomes must generally be justified by, or even should always respect, private preferences, especially as these are expressed in the market domain. ... The phenomenon of endogenous preferences casts doubt on the notion that a democratic government ought to respect private desires and beliefs in all or almost all contexts. (14)
This is Sunstein's most provocative policy claim and while it is forcefully and to a considerable extent persuasively argued, it remains somewhat incomplete. It is important to note that there is a significant difference between a general argument that asserts that "it is appropriate to use law to shape preferences" and a specific argument that asserts that "we should use law to shape preferences towards some value x." At times Sunstein seems to conflate or confuse the two. In the end, he makes the case for the former claim, but he needs a stronger argument for some of the values that he emphasizes in the latter claim.

The policy claim about preference change is part of a more general argument in support of the value of government regulation and against excessive reliance on the market. Here Sunstein makes a compelling case for the necessity of laws and government for effective markets: "markets should be understood as a legal construct, to be evaluated on the basis of whether they promote human interest, rather that as a part of nature and the natural order, or as a simple way of promoting voluntary interactions." (6) In the last third of the book, Sunstein begins to develop a conception of a state that complements market activity, relying on the notion that the state is often the most effective mechanism for assessing the costs and benefits of social and economic activity.

Throughout this set of essays Sunstein echoes his basic insight, developed in his other writings, about the possibility of political agreement on highly conflictual policy questions:

there are cases in which it is unnecessary to choose among two or more of the general grounds for governmental action; people with varying theoretical commitments might believe that a particular action makes sense. Hence political participants might achieve an INCOMPLETELY THEORIZED AGREEMENT on a particular outcome -- an agreement on what steps make best sense, unaccompanied by a shared understanding of why, exactly, they make sense. Those interested in possible changes in norms would do well to take advantage of such agreements. (59)
Sunstein argues that the idea of incompletely theorized agreement may be especially relevant to the debate over markets and government regulation:
debates that seem intractable at the most abstract levels may admit of solutions when the question is narrowed and sharpened, and hence an inquiry into the relation between markets and justice may be most productive when we draw close attention to the setting in which market remedies are proposed. ... Achievement of social justice is a higher value than the protection of free markets; markets are mere instruments to be evaluated by their effects. Whether free markets promote social justice is an impossible question to answer in the abstract. Far more progress can be made by examining the contexts in which markets, adjustments of markets, and alternatives to markets are proposed as solutions. (9)
FREE MARKETS AND SOCIAL JUSTICE is a worthy testament to the value of this method of reasoning.