The Tyranny of the Market
The purpose of studying economics is not to acquire a set of ready-made answers to economic questions, but to learn how to avoid being deceived by economists.
Joan Robinson (1903 - 83), professor of economics at Cambridge (England)
The conservative individualist will never concede hegemony to the institutions of the market. The market is made for humans, not humans for the market.
John Gray, Beyond the New Right (Routledge, London & New York, 1993) p 63
According to Adam Smith, when individuals work for their own interests, they generally serve the interests of society. This is a very seductive hypothesis, sometimes true, but too often false.
Joseph Stiglitz, The Roaring Nineties (Norton, New York, 2003)
The free-marketeers' contempt for the producer
The theory of the libertarian (free-market) economists insists that the consumer must always be king; workers and capitalists exist only to do his pleasure. In practice, as well we know, it is often the capitalist rather than the consumer who dominates. But there is no doubt at all as to who comes third and last in the deregulated free-market economy. That is the producer: the worker, tradesman, professional, or manager, except for the top level of management. For the benefit of consumers and capitalists, all these find themselves squeezed by the steamroller of unrestrained competition.
Not surprisingly, therefore, wherever in the world the principle of maximum market freedom has taken hold, the situation of the producers has deteriorated.
Clearly, we are all consumers. Yet most of spend much of our lives working as producers. Even when we are not working, as children we depend upon working adults; when retired (or unemployed), we live on benefits paid for by payroll-based contributions. Thus we are all in the producers' as well as in the consumers' camp. What then is the point of an economic strategy that panders to the consumers and bleeds the producers?
The worship of competition
According to Milton Friedman (1), the more unfair competition, the better. Here is a basic doctrine of the free-marketeers. Competition, they say, is such a good thing that we cannot have too much of it. Now, it would be stupid to maintain that competition is not good; it is indeed necessary for a healthy economy. However, like most good things, it is best taken in moderation. In excess, it is harmful.
That is an obvious, commonplace principle, is it not? Yet economists refuse to accept that it applies to competition. They want maximum intensity of competition always and everywhere. Under their influence, the law has come to treat almost any restraint of competition as a crime.
But where competition is not restrained, price cutting puts intense pressure on production costs, leading to deterioration in employment, pay rates and working conditions, and often in product quality too. Moreover, lack of restraint allows the strongest, greediest and most aggressive businesses to swallow up or drive out the others. Ultimately, too much competition leaves us with too few competitors.
The obsession with competition is not confined to prices. It extends to fiscal and regulatory competition between countries. Thus, governments are expected to vie with each other in cutting back taxes and regulations. The grand aim of the free-marketeers is clear: they want minimum tax rates and the laxest possible regulation everywhere. They call this freedom. It is, one may say, a kind of freedom; but it is a kind that destroys quality, equality, stability, solidarity and, of course, standards of public service. One might well call it anarchy.
The pace of change
The marriage of unrestrained competition with electronic technology is a formidably fertile source of change. Computer and internet developments are stimulated by the intense competition that prevails in Silicon Valley and elsewhere; in turn, these developments make for still keener competition, since they facilitate the design of new products and their worldwide distribution.
Here is a circular process of self-feeding acceleration. Market liberalisation thus leads to an ever-accelerating pace of change. It is paradoxical that its supporters call themselves "conservatives". As Gary Wills (2) observes in "Reagan's America", there is nothing less conservative than capitalism, so itchy for the new. He means, of course, Reaganite or Thatcherite capitalism. Despite the free-marketeers' disapproval, other more stable varieties of capitalism are clearly possible.
Too rapid change is disliked by most people. It can produce nasty or even disastrous public reactions. The rise of fundamentalist and extremist forms of religions can be explained in part as a reaction against the frenetic pace of change in today's societies, an attempt to regain stability by reverting to ancient unchanging traditions. The resurgence of nationalisms, too often violent, reflects a desire to take back local control of national economies, to overthrow the impersonal and inhuman domination of deregulated global markets.
Society at the mercy of the market?
According to free-market dogma, we must accept passively the dictatorship of the market. If we do so, society loses its right to determine its own destiny. Objectives such as constructing a balanced economy or eliminating excessive inequalities cannot be on our agenda. Likewise, the community loses its right to defend itself against adverse developments in local or global markets.
This doctrine provides a priceless excuse for governments that fail to solve their economic problems. They can all too easily blame their failures on inescapable market pressures. Bad employers can argue that their misbehaviour is made necessary by the demands of the market. But voters eventually tire of such excuses. They begin to ask: are there not ways of counteracting the perverse effects of market forces? This is a process of revival that is beginning to take shape.
The threat to democracy and to social justice
Free-market enthusiasts, obsessed by the historic abuses of state power in fascist and communist countries, demand the enthronement of the market as a replacement for most of the functions of the state. But that would mean a radical cutback in the range of decisions that are made by elected governments. Citizens, as electors, would lose much of their influence, so more and more of them would doubtless abstain from voting.
That would in no way worry the free-market economists, who basically despise the state. They, after all, are disciples of the Viennese economist Ludwig von Mises, teacher of Margaret Thatcher's favourite guru Friedrich von Hayek, and thus intellectual grandfather of Thatcherism. Back in the 1930s, von Mises wrote (3) that capitalism is a democracy in which every penny represents a ballot paper.
So the society of these economists' dreams would not be primarily a classical one person one vote democracy. It would be mainly a "von Mises democracy" relying on the principle of one dollar one vote. This would be a society that would satisfy more and more the demands of the richest rather than the needs of the poorest. An economist of another kind, Pierre-NoŽl Giraud, warns that Western societies are heading for the disappearance of the middle classes, leaving an affluent minority of highly competitive entrepreneurs and an impoverished majority.
Furthermore, the free-marketeers oppose redistribution via the tax system; they see this as an objectionable interference in the workings of the market. Many indeed explicitly reject (4) the whole concept of social justice, claiming that the consequences of the free market cannot be unjust.
The threat is not inevitable
Mesmerised for decades by the insistent clamour of the dogmatists, governments around the world are beginning at last to react against the impotence that market ideologues have striven to impose upon them.
During the last quarter of the twentieth century, the virus of the free-market obsession has infected most of the world, with many unhappy consequences. But this disease is not incurable. Today, in many places, the cure is starting with the return, little by little, of more balanced and sensible economic policies. We are beginning to remember that producers' needs matter as much as those of consumers; that unlimited free trading in goods, services, currencies and investments does not necessarily lead to desirable outcomes; that the market ought to be our good servant rather than our tyrannical master.
Even Americans, great preachers (but not always true followers) of the free-market religion, are declining to accept unlimited imports of Chinese textiles. UNESCO has just adopted a convention which recognises the right of countries to refuse to open their markets for audiovisual and cinematic rights. Fair trade systems, which aim to stabilise, at equitable levels, commodity prices received by small producers, are growing strongly in coffee, bananas and other products.
The current free-market obsession is a serious and painful setback in humanity's difficult, faltering progress towards the creation of healthy, just and civilised economies and societies. Perverse theories have induced us to undo many of the advances that we have struggled to achieve over the past two centuries. It is time for us to get back on the rails and resume our journey towards a better future.
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1 Milton Friedman, quoted by Michael Ignatieff on BBC Radio 4, 20/20, 5 March 1997
2 Gary Willis, Reagan's America: Innocents at Home (Doubleday, NewYork 1987), page 382
3 Ludwig von Mises, Socialism, an Economic and Sociological Analysis, tr. J Kahan (1931), page 428
4 Friedrich von Hayek wrote as follows: I have come to feel strongly that the greatest service I can still render to my fellow men would be that I make them thoroughly ashamed ever again to employ the term social justice. See Law, Legislation and Liberty (Routledge & Kegan Paul, London), vol II (1976) page 97