Moral Suasion - Effectiveness of Moral Suasion

Effectiveness of Moral Suasion

Moral suasion will be "an effective economic policy whenever the expected costs of noncompliance is made to exceed the cost of compliance".

There are 2 necessary conditions for this to happen.

• First, citizens must support the Government's policy, thus entailing objective congruence between the promoter of moral suasion and the target whose behaviour should be changed. That support emanates from such factors that determine compliance as; potential illegal gain; severity and certainty of sanctions; individual's moral development and their standards of personal morality; individual's perceptions of how just and moral are rules being enforced; and social environmental influences. For example during the hyper-inflation in Zimbabwe, most business people were accepting foreign currency as a medium of exchange in violation of the country's Exchange Control rules and regulations despite calls by the Central Bank to persuade stakeholders to accept only the local currency as medium of exchange. The business community felt that the rules being enforced through moral suasion were not just and moral. Thus in cases where factors that determine compliance are in line with Government's objectives, the cost of non-compliance increases as behaviours which are contrary to social moral values suffer social reputation if members know about the non compliance.

• Second, the population of economic agent to be persuaded must be small. Fewness entails the easy identification of economic agents to persuade, and increase the perceived likelihood that non-compliers will be identified and punished.

Even when those two necessary conditions are not fully met, moral suasion, if only partially effective, can be a valid choice of policy instruments if the alternatives are doing nothing or taking actions with high opportunity or administrative costs.

Although neither a necessary nor a sufficient condition, a low level of competition amongst suppliers in the economy contributes to increased effectiveness of moral suasion. Indeed, companies that have been "persuaded" to adopt morally superior but more costly behaviour, will be less competitive and could be driven out of the market by competitors who are not fettered by such constraints if competition is too fierce.