The real problem of three-parent families

In a world first, MPs recently voted to permit IVF babies created using biological material from three different people, in order to prevent serious genetic diseases caused by faulty mitochondria passed on by the mother. This looks set to benefit around 2,500 UK families. Much has been made of the creation of ‘three parent babies’. That term is misleading; whilst the biological material of three people is involved, less than 0.02% of the child’s DNA will come from the anonymous female mitochondrial donor. However, there is another form of ‘three parent’ baby-making, the rules for which are long overdue reform: surrogacy.

The use of surrogacy is on the rise, no doubt in part fuelled by same-sex partnerships. However, the process is fraught with difficulties, from the assignment of parental rights to the non-enforceability of surrogacy agreements, and, crucially, the fact that ‘commercial’ surrogacy is illegal in the UK.

First of all, the parental rights assigned at a surrogate child’s birth fail to reflect who will actually care for the child. Under UK law, the carrier of the child is considered the legal mother, no matter if they are genetically related or not. If the carrier is married or in a civil partnership, her partner becomes the child’s second parent. A genetically-related commissioning father will be considered the second parent if the surrogate doesn’t have a partner, but a commissioning mother will never automatically receive parenting rights to the child.

To obtain proper legal parenthood, commissioning parents must apply for a Parental Order no more than six months after the birth of their child. Only couples may apply for an order and they can take months to process, leaving a child’s main carers in legal limbo.

Another interconnected and significant issue is that surrogacy agreements are only considered informal arrangements, and cannot be legally enforced. This means that no matter how careful or extensive arrangements are made, there is no guarantee that they will be honoured. In the UK where the surrogate is considered the legal mother, they are able to refuse to hand over the child, even if it is genetically unrelated to them.

Surrogacy agreements with legal weight would alleviate both these problems. An obvious solution would be the recognition of some kind of ‘surrogacy pre-nup’, outlining what compensation or fees will be given to the surrogate, as well as establishing the ‘correct’ parental rights from the moment of birth.

However, another significant barrier to the use of surrogacy is the fact that commercial surrogacy is strictly prohibited in the UK (as it is in a large number of other countries). Currently surrogacy can only take place on ‘purely altruistic’ grounds, with compensation limited to ‘reasonable expense’ only. Prospective parents are banned from advertising their interest in surrogacy, as are potential surrogates. If no suitable surrogates can be found in the UK, commissioning parents often look to certain US states (such as California) or the 'baby factories' of India, Thailand and Ukraine to find a willing surrogate.

The foundations of the legal status of surrogacy stem from The Warnock Report into IVF in 1984, which stated “it is inconsistent with human dignity that a woman should use her uterus for financial profit”. But what exactly is so demeaning about offering gestational services for financial compensation or gain?

It’s often argued that commercial surrogacy substitutes the norms of parental love with market norms. It encourages us to think of parental rights as more like property rights than a fiduciary relationship, and the ‘selling' of children, especially for profit, is wrong. However, what’s taking place with commercial surrogacy is the purchase of gestational services and the delivery of a child, not the child itself. The property rights involved are those of the surrogate's, who has rights of control and exclusion over her body and (most liberals will argue) may use her uterus as she sees fit.

Another related idea is that there are some things - like votes- which are simply too fundamental and valuable to sell, and that the bringing about of a child is one of these things. This type of argument is made by Michael Sandel, who claims that putting a price on some of the ‘good things’ in life corrupts them, and that their commodification results in their degradation.

However, paying for gestation does not diminish the innumerable other ways in which it has value. Placing a market value on something is not to say that it has no value over and above its price - ‘priceless’ paintings are still bought and sold for sums of money. The gift of a child to a couple, and the gratitude felt towards a surrogate can indeed be priceless, even if money is exchanged.

The real question is what informed and consenting adults may do with their bodies and its functions. Arguments defending prostitution form an obvious parallel here. But even prostitution aside, there are a number of ways we profit from using our bodies and its products. We allow hair, blood, and tissue to be sold, so why not the uterus? People use their hands and brains for profit, and ‘sell’ their bodies to medical science and to sporting contracts — what then, is so immoral about gestating someone’s child for a fee? Sperm donation is not particularly morally troubling to us, even though this too separates the genetic and biological elements of baby-making, allows the donor to give up parental rights, and to profit from their act.

Admittedly, many may feel uneasy about the entire surrogacy process; it uses our bodies in ways which are somewhat unnatural, and uproots our usual intuitions about motherhood, pregnancy and prenatal bonding. Whilst we may accept it in extreme, altruistic cases, perhaps 'normalizing' the process with a commercial market leaves an unpleasant taste in our collective mouths. However, a feeling of unease shouldn’t be justification alone for prohibition.

Our comfort zones and thoughts on what are acceptable change over time. Single parenting loses its stigma, and the acceptability of same sex couples grows. When first introduced the contraceptive pill was considered an aberration of nature. Today it is considered one of the biggest feminist breakthroughs of the 20^th century. Perhaps with time the position of ‘the gestator’ will come to be viewed as a honourable and respectable profession, bringing joy to families and worthy of commercial recognition. Science lets us wage war on biological conventions and constraints, and it is time for us to tackle the social and legal barriers, too.

The ethics and practice of blood donation

We've one of those lovely Guardian discussions over the morality of commercial practices. You can guess the tone just from the headline:

Blood money: is it wrong to pay donors?

And we of course observe the comments section filling up with outraged screams that of course it's morally wrong.

Which isn't actually the point that should be under discussion. What we'd really like to know is whether paid blood donation is efficient. And the answer there is that no, it's not really. When offered a choice those who purchase blood place a higher price on blood that has been donated rather than that which has come from paid donors. Such pricing is because donations do tend to be og higher quality. So, if we could fulfill our requirements for blood and blood products purely from donations we would, by preference, do so.

But we can't so fill our preferences. So, for blood products specifically in the UK, we purchase from paid donors in other countries. Shrug. It's either that or simply don't offer the treatment and it's hardly moral to deny treatment because of some squeamishness that cash was involved in the process.

The important of this observation isn't confined just to blood of course. We tend to think that kidney transplants are better than he slow death which is dialysis. But many do die simply because there aren't enough kidneys available for transplant. And this would be true even if ever potentially usable organ was stripped from corpses, the wishes of their now deceased former owner be damned. To fill this gap we must therefore ask for live donations (much the same being true of liver and lung transplants, heart such cannot of course be carried out from a live donor). But there's a rather limited supply of people willing to live donate a kidney.

When, as we do from time to time, we suggest that the obvious answer is simply to pay donors, as they do in Iran, we're told that paying for kidneys would simply be immoral. As with those shouting about blood. Shrug: this means that people will die because of some squeamishness over cash having been involved.

Oh yes, most moral that outcome is.

It's terribly difficult to argue that markets are too short term

There's lovely little essay talking about how difficult it is to believe that financial markets are too short term in their outlook. To do so demands that said markets are entirely inefficient in their processing of information. And as this is something that no one but would be commissars still believes then it isn't really possible to insist that markets are short term in their outlook. Here's a part of said essay:

Basically, if capital markets price things well (with few ex ante errors, or put differently, the market is close to “efficient”) then maximizing shareholder value is a very good idea. Believing that markets make common and giant predictable errors is the only legitimate beef one can have with maximizing shareholder value, and it’s absolutely fair to debate this tenet.

But instead of confining the debate to this central point, or even realizing that this is the central point, critics attack shareholder value for many ancillary reasons. For instance, they laugh off the concept as vacuous, the absence of a strategy. They attack share‑based and particularly options‑based compensation. They attack markets and managers for being too “short-term."

The obvious point is that if markets are anywhere near efficient (and just about everybody agrees with the weak version and some more with the semi-strong) in the processing of information then the current market valuation is the value of that company from now into the indefinite future. And, given that we are measuring that flow of funds from that company off into that indefinite future then how on earth can this be short term thinking?

Sure, if you are a would be commissar then you can argue that markets aren't efficient at processing information. At which point you're going to have to explain the difference in food supply in London in 1990 and in Moscow in 1990. When that famous question got asked, "Who is in charge of the bread supply for London?".

Quite, markets are, observably, somewhat efficient at processing information. Thus they are forward looking and as such cannot possibly be short term. QED.

Markets make us better people

One of the most common objections to market-based societies is that they erode non-market motivations to doing good. Critics, with this objection, say that although markets can in some areas latch onto greed and turn it to society's benefit in some areas ("It is not from the benevolence of the butcher, the brewer, or the baker, that we can expect our dinner, but from their regard to their own interest") they can also pervert and corrupt existing motivations in domains where markets are inappropriate. Consider blood donations: many argue that if you start paying for blood donations then people will stop seeing them as a good deed but as a market activity, and lose their 'intrinsic motivation' to give blood. Overall you might get less blood, or less good blood than before, even though you're now spending money to get it. Back in 2012, Harvard communitarian political philosopher Michael Sandel (famous for his online lectures), wrote a hugely popular book What Money Can't Buy: The Moral Limits of Markets making roughly these arguments (read a wonderful review here).

These questions are discussed widely, but what's weird is they tend to be tackled mainly with a priori thought experiment arguments like mine about blood, above, and anecdotes, even though they are empirical questions. We can actually test whether you get less or worse blood when you pay for it! (You don't) We can test whether people are less pro-social when you add extra market institutions!

A new paper by Björn Bartling, Roberto Weber and Lan Yao, "Do Markets Erode Social Responsibility?", in the Quarterly Journal of Economics tries to do as much:

This paper studies whether concerns for social responsibility persist in repeated market interaction. We develop a laboratory product market, in which socially responsible behavior by firms and consumers involves incurring additional production costs to mitigate potential negative externalities imposed on individuals otherwise uninvolved with the market.

The data from Study 1, conducted in Switzerland, show, first, that there is a non-trivial share of socially responsible products supplied and demanded in all our market conditions, and that—importantly—the market share of the fair product is stable over time in all conditions.

Second, the socially responsible product, which costs more to produce, sells at a price premium that persists with market experience. In most cases, this price premium increases over time, suggesting that consumers’ willingness to pay for socially responsible products is not eliminated with repeated market interaction. Third, we show that individual-level market behavior is consistent with a preference for positive social impact, though such concerns are heterogeneous.

In other words: markets do not erode existing pro-social motivation; they complement it.

The Civilisation of Capitalism

In Joseph Schumpeter's (1942) Capitalism, Socialism & Democracy , Chapter 11 is entitled ‘the Civilisation of Capitalism’. There, he argues that the culture fostered by Capitalism has been responsible for the ‘rationalisation’ of society, as we know it. Rather than quoting Schumpeter word-for-word, I’d encourage people to read that short chapter. We can derive inspiration from Schumpeter’s thoughts in making the case for free markets and a free society. Intuitively, one would expect the individual living in a free society to be more intelligent and rational than his counterpart in a hypothetical, centrally planned Utopia (like Plato’s Republic). In a predominantly centrally planned economy, where there is deprivation of civil liberties, choices have already been made on our behalf whereas in a free society, people have more choices. The typical individual in the former will, most likely, be more naïve than his counterpart in a freer society and in the latter more rational. The freer society is, the greater the sphere in which people can develop the appropriate mental faculties for optimising outcomes.

Therefore, total freedom of thought is only really attainable in a free society with free markets. Restricting individuals’ freedoms prevents them from being the best people they can be and therefore prevents the best possible outcome for society as a whole.

It is a fundamental premise in Economics that all economic problems are rooted in the scarcity of resources. In Physics, understanding how to manipulate matter is considered somewhat of a holy grail. A certain depth of understanding with respect to matter would solve the problem of scarcity completely. However, if we indirectly restrict individuals’ thoughts by preventing them from living in a freer society that is conducive to such scientific discovery, we are shooting ourselves in the foot twice since Economics necessarily deals with this problem of scarcity that the other sciences might be able to relieve us of.

In a free society, the enhancement of mental faculties that accompanies increased freedom of thought enables individuals to deal with the problem of scarcity more intelligently, creatively, innovatively and rationally.

Markets involve substantial fairness

I have been writing recently about how market mechanisms work against taste-based (i.e. objectionable) discrimination on grounds of race and sex. A while ago, I wrote how, even if we think that people should not be punished with bad lives for being unlucky with their upbringing or talents, we should favour some wealth and income inequality in many situations so as to achieve more overall justice.

For example, if some choose to take more leisure instead of income, then it would not be just (on egalitarian grounds) to make sure their monetary income or wealth were equal—leisure is a sort of income. Similarly, it would not be just for people with more pleasant, safe or satisfying jobs to earn as much as those with less pleasant, more risky, or less interesting jobs (on egalitarian grounds).

There is one school of thought that understands and agrees with these caveat to equality. They may even note that teachers, who are respected and admired by society, and whose jobs are largely pleasant, satisfying and risk-free should not justly earn as much as despised unhappy bankers. But in the real world they see examples where people seem to have jobs that are high in pay and low in other benefits—boring or risky or low-status. Are markets failing to compensate people in pecuniary terms for the non-pecuniary costs of their job?

According to a new paper, they are not:

We use data on twins matched to register-based information on earnings to examine the long-standing puzzle of non-existent compensating wage differentials. The use of twin data allows us to remove otherwise unobserved productivity differences that were the prominent reason for estimation bias in the earlier studies. Using twin differences we find evidence for positive compensation of adverse working conditions in the labor market.

The authors look at twins to control for 'unobservable' factors about the person—basically their productivity and how employable they are—and find that workers are paid more for doing less desirable jobs. Though it often seems like they aren't, this is only because some people (mainly people on early steps of the productivity/human capital ladder without much in the way of experience or skills) are very unproductive. Of two twins, the one with a less pleasant or more risky job gets paid more.

The unique feature of our data is that we are able to estimate specifications that also control for unobservable time-invariant characteristics at the twin pair level (e.g. place of residence, spouse’s occupation, or family situation) and the common wage growth for the twins. We find evidence for positive compensating wage differentials for both monotonous and physical work using the data on MZs (monozygotic, i.e. identical, twins). Assuming that equal ability assumption holds for MZs, the results imply that both twin difference estimates and Difference-in-Differences (combined twin difference – time difference) estimates are unbiased for MZs.

I am perfectly comfortable with arguments that differences in endowments (basically upbringing and inborn talent) mean that there is a case for redistribution between individuals. But it bears repeating that markets, working properly, automatically produce results that in many ways elegantly fulfil the egalitarian concerns of leftist social justice.

Being economically worth less does not mean you are worthless

I’ve just been on Channel 4 News discussing Lord Freud’s comments about letting people with disabilities choose to work for below the minimum wage. I haven’t watched it back but I gather from Twitter that I fluffed it a bit – unfortunately the producers put me up against two people without telling me, so I got flustered. 

The thing I said that upset people the most was that some people with severe disabilities or learning difficulties may be economically worth less than people without. (One of the people I was debating apparently thought I said ‘economically worthless’.) 

Lots of people have taken this to be a comment on the moral value of people with severe disabilities or learning difficulties. This is an error. The value of a person’s labour is equivalent to what others will pay them for a given amount of time, also known as their productivity. When Lord Freud talked about people not being ‘worth’ the minimum wage, this is what he meant.

It has absolutely nothing to do with how important they are as a person. Some very good people are unproductive because they are inexperienced, they don’t have economically-valuable talents, or they are disabled. Some very bad people are very productive because they did well in the lottery of life. Indeed this is something I care about very strongly, and it has led me to abandon beliefs I once held quite strongly in favour of mechanisms that would redress some of this imbalance.

Perhaps it was a bad choice of words to say ‘economic worth’ because many people are unaware of the above. I can understand that if you heard me say someone was ‘economically worth less’ (let alone ‘economically worthless’!) that you might think I was making some comment about that person’s value as a human being. I’m pleased, at least, that many people who disagree with me nonetheless give me the benefit of the doubt, and I hope I’d do the same.

I think Freud’s comments were motivated by a sincere desire to make disabled people’s lives better off by allowing those that want to work to do so, with their wages topped up by the taxpayer. Whether or not you agree that this is a wise move it does nobody any favours to suggest that anybody in this debate thinks people with disabilities are not valuable as human beings.

Markets like women too

Last week I wrote about how markets militate against racism. It's a basic and over-worn point, but it seems to be forgotten regularly anyway. Here I shall make the same point, but with respect to women. It's a common view that women are paid less than men on average, even after you account for hours, experience, qualifications, industry, risks, pleasantness of job and so on (though they do account for a very large fraction of the gap).

But there are a few other factors that studies have only started looking into recently. One of those is exit. Women often exit the labour force earlier than men, trade down to more flexible or part-time jobs that don't pay as well. It might well be said that this is the product of socially constructed expectations about what different genders are expected to do and how they are expected to structure their lives—with one gender still doing more work outside the house and one still doing more inside.

But even if this is true, it is important to stress that this 'discrimination', which certainly doesn't seem to result in lower happiness for women, happens at the level of upbringing, schooling, and so on rather than at the level of employment. Firms are not to blame and indeed, recent research suggests firms are actually pretty pro-women.

For example, "Gender Differences in Executive Compensation and Job Mobility", published in the Journal of Labour Economics in 2012 (up-to-date abstract here, full working paper pdf here) finds that if you control for background (i.e. skills and talent) and exit (i.e. women staying in the workforce) women earn more than men and get more aggressively promoted than men.

Fewer women than men become executive managers. They earn less over their careers, hold more junior positions, and exit the occupation at a faster rate. We compiled a large panel data set on executives and formed a career hierarchy to analyze mobility and compensation rates. We find that, controlling for executive rank and background, women earn higher compensation than men, experience more income uncertainty, and are promoted more quickly. Amongst survivors, being female increases the chance of becoming CEO. Hence, the unconditional gender pay gap and job-rank differences are primarily attributable to female executives exiting at higher rates than men in an occupation where survival is rewarded with promotion and higher compensation.

Another paper, from July this year, finds that reservation wages (the lowest amount a person will take to do the job rather than remaining unemployed and taking nothing) explain the entirety of the gender wage gap that remains after you control for personal and job characteristics. This suggests, again, that the discrimination that is happening (if it is happening) is not coming from markets.

The economic literature typically finds a persistent wage gap between men and women. In this paper, based on a sample of newly unemployed persons seeking work in Germany, we find that the gender wage gap disappears once we control for reservation wages in a wage decomposition exercise. Despite a concern with reservation wages being potentially endogenous, we believe that the exploratory results in our paper can help one better understand what the driving forces are behind the gender wage gap. As the gender gap in actual wages appears to mirror the gender gap in reservation wages, there is a clear need to better understand why there are gender differences in the way reservation wages are set in the first place. Whereas a gender gap in actual wages could reflect either productivity differences or discrimination, a gender gap in reservation wages essentially reflects either productivity differences or differing expectations.

This just adds to a burgeoning literature finding that the reason men and women have different outcomes in labour markets is that they differ systematically in job-relevant ways. For example, men in the Netherlands systematically choose more competitive academic tracks. Even very narrow estimates of the risk-tolerance gap between men and women estimates it at about one standard deviation (implying the male and female distributions overlap 80%).

Again, this does not imply there is no discrimination in society—it just shows that it's not corporations, firms, companies, businesses, start-ups, market organisations who are doing it.

Fighting Daʻish, the un-Islamic State, with Mercenaries: an effective, feasible alternative?

We might be forced to deploy boots on the ground because air strikes are not sufficient to subdue the repugnant Daʻish (ISIS/ISIL/IS); instead, allowing Private Military Companies (PMCs) to lend direct support to suffering peoples via Mercenaries might be a more effective alternative. Many locals want to fight back (Kurdish Syrians, for example); let PMCs hire them and let them liberate themselves from Daʻish! It is not foreign support that people dislike but the feeling of indignity that arises from others having to fight your battles for you. The mask Daish wears is ideological in order to recruit more extremists and maintain an image; however, many rank-and-file members fight because of the relatively high wages paid (like the Taliban). Attracting individuals to PMCs instead of Daʻish and inducing defections would dwindle their numbers, slow their recruitment drive and show people that it would be increasingly risky to join them. Furthermore, as people defect, those inclined toward violent extremism for ideological reasons would realize that Daʻish is not what they thought it was and, therefore, Daʻish would lose some vital, core supporters. This would encourage a natural death for Daʻish through depletion of native support instead of a long and ineffective war against guerilla fighters.

Whereas our own armed forces would be reluctant to employ natives in the rank-and-file for security purposes, PMCs are more flexible with their recruitment policies. Furthermore, they would be legitimized, have more funds available and pay more than Daʻish; thereby giving young fighters a visible alternative (which isn’t their Govenrment, Foreign Governments or Militias they may have learned to despise) to Daʻish at a time when peaceful employment is scarce and they are pressured into joining for economic reasons (in Daʻish strongholds, for example). The PMCs’ recruitment efforts would also be counter-propaganda to Daʻish’s brainwashing.

Private entities could pay the PMCs to fight Daʻish. This would avoid impositions on those who do not want to see their servicemen on the ground in Iraq whilst enabling those who despise Daʻish to act. Funding would primarily be from sympathisers including, but not limited to; the Iraqi, Syrian and Kurdish diaspora, masses of moderate Muslims, humanitarian and charitable organisations, concerned global citizens, businesses that have vested interests in a stable Middle East, Philanthropists etc. PMCs would also have no incentive to continue fighting once sponsors cut funding.

What about the potential for immoral activities perpetrated by the PMCs? Where is their accountability? Sponsors of such PMCs would naturally distance themselves from those who exploit the chaos of war rather than alleviate suffering; it would be in the PMCs’ best interest to behave relatively decently in war though still ruthlessly toward Daʻish.

If Governments are wavering to offer even inadequate support, why should we be forced to lobby them to do so? Why should innocent people suffer as a result? This alternative can avoid compulsory deployment of servicemen, imposition of taxes and, most importantly, enable us to express ourselves and fight injustice in any way possible.

Markets don't like racism

It is a commonplace to the point of boringness among advocates of free markets that they make people pay to discriminate based on their tastes. A factory owner who restricts employment to whites only will face a narrower talent pool—likely paying higher wages for lower skills in total or on average. Southern US states had to pass laws to try and stop employers competing with each other over black labour and bidding up their wages. 

Even owners of basketball clubs believed to be personally racist have disproportionately black teams, paying them huge sports star wages. However, not all ethnic groups have similarly prestigious or high-flying careers, and they do not all take home equal market incomes. It would be easy to jump to the conclusion that taste-based discrimination is driving this and the market isn't doing its job fully. But there is an alternative.

Employers cannot observe an employee's productivity directly, at least before they employ them. But they can observe some things about them that signal productivity—using statistics. For example, if on average south Asians or Polish migrants tend to work harder than white Brits, they can use this fact about them to help make their employment decision. This isn't racist—they don't prefer employing south Asians, and they would be equally happy to pay a white Brit £6.50 an hour to produce £7 of stuff—it's just that on average south Asians produce £7 of stuff an hour (say), whereas white Brits produce £6.40.

Which one is actually in place? We can test this. The answer is a resounding 'statistical discrimination'. For example, minorities in France did worse when a large randomised study made them anonymous in job applications—so firms couldn't see their names and thus ethnicities—implying that the reason they were called back and employed less was because their resumes/CVs were less attractive.

In Germany, job applicants with Turkish-sounding names got less callbacks than those with German-sounding names—unless both applicants had a favourable employment history reference. Then, for a given quality of reference, employers didn't care whether they were Turkish or German. On eBay, white sellers receive lower prices selling stereotypically black products and black sellers receive lower prices selling stereotypically white products, but these differences go away when sellers build up credible reputations.

US "landlord response rates across neighborhood racial compositions conform to the statistical discrimination model where agents use past experience to predict applicant quality by race." In the Israeli used car market there is "robust evidence of discrimination against Arab buyers and sellers which, the analysis suggests, is motivated by ‘statistical’ rather than ‘taste’ considerations." In an experiment selling iPod Nanos online, its being held by a black hand made buyers warier, to a similar degree as its being held by a tattooed white hand.

People do no racial discrimination whatsoever, and choose entirely based on expected points return, when picking their fantasy football team. Finally, even most of shared renting decisions in London are based on statistical concerns (some ethnic groups commit more crimes per capita), rather than personal preferences over races and ethnicities.

It is perfectly well and good to lament the fact that for whatever reason, some ethnic groups are less qualified, systematically less hard-working, achieve worse educational results, commit more crimes or whatever. This might be the result of discrimination on some other margin. But we can be pretty sure that markets are picking only on the criteria we want them to use.