From Industrial Relations to Personal Relations:
The Coercion of Society
Social Engineering in the Market Place
Professor Ross Parish
An American sociologist, Peter Rossi, has enunciated
what he calls "metallic laws" of the evaluation of
social programmes; and his iron law of evaluation
is that "the expected value of any net impact assessment
of any large scale social programme is zero". In other
words, no effect. The stainless steel law of
evaluation is that "the better designed the impact
assessment of a social programme, the more likely is
the resulting estimated net impact to be zero"; and
the brass law of evaluation is that "the more
social programmes that are designed to change individuals,
the more likely net impact of the programme will be
(I might say that Rossi is not deterred by his negative
conclusions, and remains a dedicated interventionist.
He says 'the double message of this paper is an argument
for further development of policy relevant to basic
social science and the establishment of the new profession
of social engineer!')
I think Rossi is a bit too pessimistic. I think social
programmes do have effects; our two previous speakers
certainly testified to that, and what I am going to
say suggests that they often have effects which are
different from what was intended. But, more fundamentally,
it is often very difficult to determine what the effects
of social policies are.
Evaluation is made difficult by the complexity and
flux of the social world, and its failure to perform
the sort of experiments needed. Journals are full
of econometric studies of these things---for example,
how many lives have been saved by some safety programme---but nobody really takes much notice of these any
more. People are quite properly rather sceptical of
The problem of evaluating programmes is compounded
by the tendency of governments and their agencies to
attack any problem on a broad front using several policies
so it is difficult to disentangle the effects of any
one of them from those of the others. I think that
may very well be a calculated policy because it is
a form of insurance. If none of the policies work,
and it is obvious that none of them work, then that
is a problem; but if one of them works they all get
a bit of the credit. Therefore, no programme can be
eliminated on the basis that it doesn't work. A good
example is road safety where we have better roads,
booze buses, red light and speed cameras, seat belts
(and soon airbags), and frightening TAC advertisements;
and nobody knows how much the lower road toll is due
to any one of them and how much is simply due to the
recession. There is good evidence in the United States
that there is a very close correlation between the
economic activity and road fatalities. In fact someone---an econometrician---has estimated that the economic
factors account for 30-40% of the decline in the last
three years in Victoria.
As a consequence of the difficulty of evaluating programmes
ex post they tend to be judged by their intentions
rather than their consequences. This links up with
what Colin Howard said: if the intention makes you
feel good, then it is a good programme. People seem
to think that the effects of policies and programmes
will reveal themselves over time. I remember years
ago when Britain was considering entering the Common
Market "The Times" editorialised to the effect
that there are arguments both ways but we will only
know the effects of entry five years after we enter.
Of course we did not know then. We did not know what
it would have been like if Britain hadn't joined the
market. Evaluative, ex post, studies involve
the comparison of factual and counter-factual situations,
just as predictive studies do.
I think we need to distinguish between the ostensible
and latent purposes of policies. For example, sex
education in schools has presumably the ostensible
purpose of reducing teenage pregnancies, but I would
suggest has the latent purpose of breaking down sexual
taboos among young people .
It would be interesting to develop a typology of social
engineering interventions but as I haven't been able
to do that I am going to deal with only one type: that
is, interventions which seek to alter the rules for
transacting so as to favour one of the parties in the
transaction. Now the sort of transactions I have in
mind are between producers and consumers, lenders and
borrowers, landlords and tenants, employers and employees,
husbands and wives---whatever you like. With the exception
of the last, all of these transacting pairs consist
of a buyer and a seller---and some may say that applies
to husbands and wives as well. Interventions typically
favour the buyers who, it is alleged, are in an inferior
bargaining position vis-a-vis the seller, and are
exploited or are victims and so on. The exception is
the employer/employee relationship where intervention
usually favours the employee (the seller of labour)
rather than the buyer. Actually, labour contracts
are more complicated than that---the employee sells
his labour and the employer sells working conditions
and promotion prospects, etc. Note that in all cases
intervention is in favour of the more numerous group,
something that one would expect in a democracy.
Intervention is usually based on a bargaining or a
power model of the transaction relationship. Buyers
are at a bargaining disadvantage vis-a-vis sellers---or so it is said---and hence the rules should be tilted
in their favour. Standard contracts are criticised
by radical lawyers as being unconscionable because
they seem to favour the seller. I think there is a
lot of confusion on the part of lawyers---market exchange
doesn't take place in a sanitised legal environment.
It is done in a cultural milieu where certain rules
of the game are tacit, but understood and is based
to a considerable extent on trust and on custom rather
than on strict law.
Although there are areas of possible conflict between
buyers and sellers, the over-whelmingly important thing
about their relationship is its complementarity. Buyers
needs sellers and vice versa. Sellers compete with
one another. They don't compete with buyers. Buyers
compete with one another. Voluntary exchange is mutually
beneficial. Complementarity is often ignored, suppressed,
or denied by the so-called reformers who see only the
element of conflict in the relationship. For example,
militant feminists deny the complementarity of men
and women and Marxists see the interests of labour
and capital as being antithetical.
Now let me discuss to some of the concrete examples
of the sort of things I am talking about.
- 1.One sort
of reform which has been popular in recent times is
the denial to sellers, vendors, landlords of so-called
self-help remedies against contractual default by buyers.
These include the legality of a utility cutting off
service to a customer who is not paying his bills;
the repossession of vehicles under hire purchase agreements
when the purchaser fails to keep up the payments, and
the retention by landlords of security deposits to
cover unpaid rent and property damage by tenants.
Now the last two of those have certainly been done
away with through hire purchase no longer being legal
and the Residential Tenancy Legislation of some years
ago has put the security deposits under the control
of a government agency.
- 2. Another example is the inclusion of mandatory cooling-off
periods in certain types of contract---used cars, houses
at non-auction sales, and door-to-door sellers.
- 3. Mandatory warranties for used cars.
- 4. The substitution of caveat venditor (or seller
beware) for the caveat emptor which used to
be the dominant rule in liability law.
Now all of these reforms raise the sellers' costs.
It is fairly cheap and easy to send somebody out to
repossess a car but it is more costly if you have to
do it through the courts, which is the only way it
can be done today. If the producer or the seller is
likely to be held liable for product-related accident
costs, he will take out liability insurance or possibly
self-insure and that adds to his costs. He will attempt
to pass these costs on in the price of the product
or service, and to the extent they are passed on buyers
will pay (in whole or in part) for their new rights.
That is the first major point and one which is often
neglected by the advocates of this sort of thing because
they have some notion that these costs can easily be
absorbed and will be absorbed for some reason by the
You will notice that these policies are expressed
in terms of a dichotomous or dualistic view of the
world---buyer/seller, employer/employee and so on.
But in undertaking further analysing this simple dichotomy
becomes inadequate and we have to distinguish between
different sorts of consumer/borrower, etc., and different
types of producer, lender and so on. So let me now
speak of "good" and "bad" members of each group, where
"good" and "bad" describe the perception of the person
or economic entity by the opposite side of the market.
"Bad" customers are those that don't pay or are slow
in paying their bills, or their credit repayments;
"bad" tenants are those who wreck the property and
don't pay the rent. They may be "bad" customers because
they are dishonest, feckless, or are unfortunate.
This category would also include the litigious and
politically motivated or alienated persons who behave
in a manner that most would describe as unreasonable.
"Bad" sellers are the Arthur Daleys of the world,
the shonky sellers who behave unethically and unlawfully;
loan sharks and rack-renters who prey upon minorities
who are unaware of their rights, or who are unable
because of their own criminality to seek the protection
of the law.
Of the four groups under discussion, only one, that
is the "bad" buyers, will benefit unambiguously from
the legal enhancement of buyers' rights or the curtailment
of sellers' rights. "Good" sellers will be harmed
to the extent that they are unable to pass on their
increased costs to buyers and even if they can, they
are likely to suffer from reduced sales.
"Good" buyers will be harmed by the rise in the price
of the goods or service. Some will gain, admittedly,
from the curtailment of the activities of "bad" sellers.
But many will pay for a right which is of no use to
them. It is a right which is only useful to the "bad"
"Bad" sellers will be harmed by being denied the use
of questionable practices. However a change in the
law will have little effect on those already acting
extra-legally. Loan sharks' propensity to knee-cap
under-performing borrowers is unlikely to be reduced
by a law forbidding less drastic self-help remedies.
So the effects of legal innovation of this sort increasing
the rights of consumers is likely to be perverse in
that good consumers are harmed, bad ones benefited.
Even the one presumably positive outcome, that is
the deterrence of "bad" selling practices may in practice
be of little importance since shady businessmen are
least likely to be inhibited by legal considerations.
That is the first round effect. There are some further
effects that are also likely to occur.
If sellers are denied certain remedies for contractual
default, they may seek means of avoiding that problem.
For example, they may be more selective in whom they
accept as customers. They may demand references, check
credit ratings, or they may simply discriminate on
the basis of various stereotypes. To the extent that
such screening is successful, the costs of sellers
will be reduced, but to the extent that it is misdirected
potentially satisfactory customers will be rejected.
This sort of response is characteristic of rent control.
In Canberra they had rent control briefly in the 1970s.
There was a practice in Canberra for groups of three
or four students to rent a suburban house and the landlord,
knowing students' propensities, would charge them somewhat
higher rent, but the students were happy as it was
cheaper than living in colleges. It seemed to be a
satisfactory arrangement all around. When rent control
came in of course the landlords were forbidden to charge
higher rents, discriminating against students, and
the result was no more houses for students. Students
protested about the lack of student housing but, of
course, at the same time favoured rent control. Of
course what the landlords wanted was a nice married
couple with no children and both of them working.
Another consequence is that customers certainly have
more incentive now to be "bad" customers, since they
are more likely to get away with that sort of behaviour.
If the gas company can't cut off the gas because you
haven't paid the bill, they are likely to have more
slow-paying customers and more bad debts.
One good effect is that sellers will have a reduced
incentive to behave badly.
There will be less adherence to the customary commercial
morality, that is the tacit rules of the game by customers,
and that form of behaviour being replaced by the legalistic,
even a litigious approach to market relations.
It would be a mistake to think that all of these interventions
were the result of legislated changes. Most of the
examples I have been talking about have been of that
sort. But the Anglo-Saxon attachment to judge-made
law means that changes in terms of contracts can and
have been brought about by judicial interpretation.
The shift from the doctrine of caveat emptor
to caveat venditor in the United States has
been, I believe, accomplished largely by judicial innovation.
The shift in liability together with the award of
huge damages by both juries and judges, has resulted
in large increases in costs and prices of various products
and services. A most perverse consequence of this
has been that some products have simply disappeared.
For example, I believe, that the manufacture of single
engine aircraft in the United States has ceased because
the liability insurance is so high that it is not worthwhile
to produce them and, again in my talking to doctors,
I have been given two examples of highly skilled doctors
in the United States (one a brain surgeon and one a
spinal expert) who took on hard cases, a lot of which
were unsuccessful. As a result they were refused insurance
and had to give up practice and restrict themselves
The very high damages frequently awarded in American
cases are often blamed on the ignorance and soft-heartedness
of juries. However, I understand that in Victoria,
doctors prefer to have their cases heard by juries
because judges tend to give the most extravagant awards.
It was suggested to me that judges want to do good,
to feel good about helping poor people whereas juries
are a bit more circumspect in their deliberations.
To sum up. In social policy, as in anything else,
good intentions are not enough, but owing to the difficulty
of prediction and evaluation, policies are often judged
by their intentions alone. Evaluation is difficult
because of the complexity of the social world, and
by the propensity of governments to attack any "problem"
using a variety of instruments, thus ensuring that
their effects are confounded. A major deficiency of
policy makers and advocates is neglect of the economic
effects of their policies, that is, the way markets
respond to and interact with particular intervention.
Economic analysis can usually predict the nature of
the effects of a policy, but is less successful in
predicting their magnitudes.
Ross Parish, "Industrial Censorship". Quadrant,
XXII:7 (July 1978) 12-17.
- Ross Parish, "The Economic Effects of Victoria's Residential
Tenancies Bill" in Robert Albon, (ed). Rent Control:
Costs & Consequences (St Leonards: Centre for
Independent Studies, 1980) 191-221
- Ross Parish, "Consumer Protection & the Ideology
of Consumer Protectionists", in AJ Duggan & LW
Darvall (eds) Consumer Protection Law & Theory,
(Sydney: Law Book Company, 1980) 229-243.
- Peter Rossi, "The Iron Law of Evaluation and Other
Metallic Rules", Research in Social Problems &
Public Policy Vol 4 (1987) 3-20.
Why HR Nicholls?