EconTech

This is ridiculous. I’m sure there are objections to the whole Sunstein “Nudge” proposition. If this is the best a seasoned scholar can do, we may be looking at the next revolution in political theory. No, I do not believe this to be the case. That is just how disappointed I am by the quality of this post. Consider:

1) The notion that people should be inundated with more choices because that will improve their utility has been pretty much debunked by the guys over in the behavioral economics department. (It is late, forgive the missing link please). There is a balance to be struck here. Sunstein and co. are basically arguing that we should pay attention to that balance, but not to preclude the choice option.

2) I am the first to cringe at the amazing amount of power corporate America has over its customers and employers. Nudging is not where the issue is, however. Consider the massive anti-consumer lawsuits and lobbying as a starting point.

3) Creating “defaults” (really, there is always a default, why not try making it a sane one) is no where near Ford’s Sociological Department. The connection is not there. There is not even a proposed slippery slope, which is a terrible argument anyways, just a discontinuous fall into insanely invasive corporate practices that Sunstein et. al. are NOT advocating.

Please, I want to hear interesting rebuttals to Sunstein’s thesis. It leaves me a bit unsettled, but I’m not sure why. This definitely is not it.

The Nanny Corporation

The “Nanny State” seems to be thriving as never before. To see this, I need only peer out from my 6th Floor window at the City of Chicago, which has recently banned foie gras (it is bad for the geese) and smoking in bars (it is bad for the smokers, non-smoking patrons, and bar employees). Similar moves are happening all over the country. This well-known phenomenon is getting traction among Republican presidential candidates, and was the subject of a recent book by journalist David Harsanyi.

We are also seeing the rise of the “Nanny Corporation”.

Faced with rising health care costs and potential lawsuits from employee misbehavior of various sorts, firms across the country are prying into the private lives of their workers. For example, in 2004, Weyco Inc. told employees who smoked that they had 15 months to quit, and when four employees refused to submit to a breath test, the firm fired them. Computer giant IBM recently got into the game too, paying employees $300 a year for agreeing to eat healthy and exercise. The program, which has cost about $130 million but returned a savings of three times this, is being expanded to include the children of employees too. Two Chicago academics, Cass Sunstein and Richard Thaler, advocate a version of this in their new book “Nudge”.

Sunstein and Thaler argue that firms (and the government) should actively set default rules—such as savings rate in firm-provided 401(k) plans—in ways that are in the best interest of workers because workers can’t be trusted to make these decisions on their own. (A better solution might be for firms to force a choice. For example, instead of setting a default rule, require employees to choose before they can start work. The choice could be: (1) set your own savings rate from X-Y%; (2) choose the average of all other workers in (a) our firm or (b) all firms; (3) let the firm choose for you; (4) let the government choose for you. This would preserve choice, would capture wisdom-of-crowd benefits, and would have the bonus of not making sheep out of all employees, something even Kant knew was a good idea.)

The rise of the Nanny Corporation raises a host of questions: Is paternalism by firms (that operate in competitive markets for products, capital, and labor) normatively less troublesome than government paternalism? What role should the government play when it sees firms increasingly taking away the privacy of individual employees? (For example, one response could be to move away from employer-paid health care.) Is corporate paternalism more effective than government paternalism at reducing smoking or other goals? Should state corporate law or federal labor or employment law have anything to say about the types of private ordering in these cases?

Although I have no answers to these questions as of yet, a recent paper posted on SSRN (and a chapter in a forthcoming “Corporate Law Stories” book), shows how the Nanny Corporation is in fact an old idea. (The paper’s main goal is to provide some historical context for the case Dodge v. Ford Motor Company and to reinvigorate it in the face of recent criticisms about its role in the corporate law cannon.)

In the early Twentieth Century, Henry Ford set up a vast “Sociological Department” to ensure that workers acted in their private lives the way Ford thought best. For example, workers who drank, did not save, or otherwise did not comport with Ford’s views of the good life, would not qualify for the increased wage the Ford Motor Company paid as part of the famous “Five-Dollar Day”. The Department published pamphlets offering advice on a range of topics, and, somewhat shockingly, sent “investigators”, to workers homes to “observe[] firsthand the tidiness and hygiene of the home.” Ford believed in strongly in paternalism for his workers, and used the Sociological Department to “shape the character, domestic life, and financial habits of Ford workers.”

The Sociological Department was very creepy and so was eventually disbanded, but it seems like corporate America is headed back in this direction. This is a potentially troubling trend that warrants close attention.