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1.2 Non-traded Sector |
In the first section, we clarified this issue: A third type of regulation beyond market and government did exist in history, namely regulation by custom and morality. Its strength or otherwise, its clear results or otherwise, depend on whether people attach importance to it and whether they care that it plays its role. In other words, the crucial factor is people's subjective effort. In this section, we analyze the various relationships in the non-traded sector. In social and economic life, the traded sector and the non-traded sector co-exist. In the former, market rules play the major role in terms of regulating resource allocation, etc. Government guides and manages the market, makes up for the limitations of regulation by market and rectifies the defects of the market. In the traded sector, regulation by market is basic in nature whereas regulation by government is at a higher level. But the same is not true of the non-traded sector, since market rules have no role here and the market mechanism does not exist here. Because of the absence of regulation by market in the non-traded sector, the role of regulation by government differs from its role in the traded sector.
To better explain the features of the non-traded sector, let us first discuss human needs, human behaviors and interpersonal relations. In real life human beings are "social men" living in communities, having their own needs, pursuits, aspirations and emotions. They have relatives, friends, colleagues and townsmen with whom they are in contact. In social contacts, they have to consider various relationships, follow conventions and take care not to overstep boundaries. They are influenced by their surroundings and may influence others as well. They persuade others and are themselves persuaded. Their experiences constantly change, as do their emotions and their ways of thinking. As "social men" they behave thus in the traded sector and in the non-traded sector this is even more the case. Therefore, the study of various activities and relationships in the non-traded sector is in a certain sense the study of countless individual "social men" and the various groups they form.
The non-traded sector not only exists but constitutes a rather large part of social and economic life. The American economist Kenneth Boulding pointed out that a price-centered trading economy is far from capable of including all human economic activities. As well as the exchange economy, there is the "grants economy," an economy that is not founded on exchange but on bestowal. According to Boulding, the "grants economy" has three origins: love, fear and ignorance.
What is "bestowal" originating from "love"? People have relatives and other close ties. Out of "love", they are willing to grant part or all of their properties and incomes to others, a behavior that has nothing to do with price-centered exchange economy.
What is "bestowal" originating from "fear"? For example, a man is threatened by robbers whose goal is to take his belongings. This man has to choose between money and life. Obviously he will choose the latter by giving his money to the robbers. This is also "bestowal behavior," but "bestowal" engendered by "fear."
What is "bestowal originating from "ignorance"? According to Boulding, when two parties conduct an unequal exchange, one party takes advantage of the "ignorance" of the other, gaining more whereas the other suffers losses. This is the equivalent of bestowal behavior, bestowal out of "ignorance," and is plainly different from an exchange economy situation.
Boulding came to the conclusion that the "grants economy" was different from the exchange economy and that traditional economics could analyze phenomena only in the exchange economy, not in the "grants economy."
Boulding's statement is not without merit and his proposal of "grants economy" is educative. But it is hard to sum up relationships and activities in the non-traded sector as "grants." To be more precise, though social and economic life can be classified into traded and non-traded sectors, to say it comprises only exchange economy and "grants economy" is incomplete. The traded sector might be equivalent to exchange economy, but the non-traded sector is far more complicated than a "grants economy" and the relationships within do not stop at "love," "fear" and "ignorance." Those relationships, such as ties among families, clansmen, relatives, neighbors, townsmen, schoolmates, friends, or teachers-andstudents, are not trade-centered, so they cannot be summarized under the three origins. Academic activities, social gatherings, charitable events, etc., are generally non-trade-oriented, but they cannot be summarized under the three origins, either. Therefore, it is more accurate to say "various relationships and activities in the non-traded sector" than merely use the word "grants."
Relationships and activities in the non-traded sector are not in the realm of regulation by market, nor are they subject to market rules. The market mechanism does not intervene in the non-traded sector. As for regulation by government, its main role in the sector is to set boundaries for those relationships and activities, namely, that none of them should overstep the limits established by law or violate laws, at pain of punishment for infringement. However, government does not involve itself in how the activities are conducted or how the relationships are handled, but allows the force of custom and morality to play the main role here. This is an important distinction between the non-traded and the traded sectors.
A society is formed by countless individuals, who have dealings with each other and sometimes conflicts. Individuals have individual goals but the important issue is how to avoid one person's goals conflicting with those of others. If realizing one person's goal entails damaging that of the other, then the rationality of their behavior and goals should be probed. The question of rational behavior and rational goals applies in economic and social activities alike. A person's rational economic behavior and goals may well be at one with his own rational social behavior and goals, but they might be irrational when considered from the perspective of social activities. Therefore, as "social persons," we have to consider the rationality of our behavior and goals from an economic perspective and from a social perspective too. Why do we raise such a question in discussing the relationships and activities in the non-traded sector? It is because this question is linked to the limitation of regulation by market and by government as well as to the effectiveness of regulation by custom and morality.
Of course, society expects the behavior of individuals to be in line with social norms and individual goals to be in line with those of social development. If an individual's behavior is not in line with social norms but will not actually harm normal social and economic operation or hamper achieving society's development goals, there is no need for society to regulate it. If an individual's goal is not in line with that of social development, provided it will not harm the interests of other individuals or hamper the realization of their goals, there is no need for society to regulate this, either. The need for society to regulate arises only when individual behavior and goals are at odds with social norms, with the goals of social development and the interests of others or overstep the limits set for them.
In the traded sector, regulation appears simpler: On the basis of regulation by market, regulation by government can roughly coordinate individual behavior and goals with social norms, so regulation by custom and morality plays only a supplementary role here. In the non-traded sector, things get more complicated. As addressed above, relationships and activities here are independent of the market mechanism, i.e. regulation by market has no role in this sector. Nor does regulation by government interfere too much here: Its main role is to set boundaries for those relationships and activities, i.e. none of them should overstep or violate laws. This leaves considerable space for regulation by custom and morality, which is the form of social regulation most relied on and acceptable to the majority when individual behavior and goals are out of line with social norms or overstep boundaries.
Then we hit a problem: In the non-traded sector, individual rational behaviors may be legal, but to be rational does not imply legality, nor does legality imply that a behavior is rational. But we have to ask: Why does the traded sector have no such problem of rationality/legality in individual behavior? In the traded sector, provided the market mechanism is complete, regulation by government is effective and laws are executed seriously, individual behaviors usually can be legal and rational at the same time. In trading activities, even incomplete laws in need of modification are still effective and have to be abided by. Only thus can the trading parties be protected by law. Since a trade involves the economic interests of both parties, it has to be both rational and legal. No trading activity or individual behavior, even if it is considered rational, will go on happening if it is not legal: at most it will be a one-off. In general, in the traded sector, economic interests determine that legality is generally equivalent to rationality.
Things are different in the non-traded sector. Laws only set boundaries within the non-traded sector and no activity should overstep them. Relationships and activities within this sector are mainly regulated by custom and morality. Therefore there is a direct correlation between the boundaries of rationality of non-trading behaviors and the scope defined and endorsed by custom and moral beliefs and principles. In the non-traded sector, the fact that a behavior on the part of an individual is rational does not equate to its being legal, and it certainly does not mean such a behavior is illegal. In fact, within the boundaries defined by law, many relationships are not managed by specific laws, but depend on regulation by custom and morality and by cultural traditions. The fact that an individual's behavior is legal does not equate to its being rational, and it certainly does not imply that legal behavior is irrational. Since there are no specific laws to follow in handling many relationships in the non-traded sector, when a law is brought in it might not be in accord with custom or traditions, thus giving rise to a situation which is legal but not rational.
Unlike in the traded sector, if the situation arises in the non-traded sector where an individual behavior is rational but not legal or legal but not rational, this is considered quite normal. This is because when we talk about legal or non-legal in this context it does not mean whether those relationships or activities have or have not overstepped boundaries defined by laws: it is about whether or not there are specific laws to follow within those boundaries. The reason we say regulation by custom and morality is extremely important to the non-traded sector is because the greater the lack of specific laws to follow, the greater the need for this type of regulation; the more individual behaviors need to be in harmony with social norms, the greater the need for regulation by custom and morality.
The fact that people are "social men" is more obvious in the non-traded sector. Since people are "social men," the ability of regulation by market and government to deal with issues involving people is rather limited, and regulation by custom and morality is more applicable here. If we consider this argument from the angle of "social men," we will have a deeper understanding.