Simon Duffy

Thoughts, Bemusements & Arguments

Tag: markets

Equality and the Market

I like and loathe Twitter; it draws you into debates with all sorts of interesting people and challenges you to make your point as sharply as possible. But it is also frustrating when something seems really obvious, but you can’t convert its truth into 140 characters. There is also a danger that you will be pulled into making ad hominem attacks on people’s character – attacking someone for their failure to understand you – rather than focusing on being clear and truthful.

One recent enjoyable, but also rather difficult, conversation was on the topic of inequality and the market. The challenge began with a video from Mark Littlewood of the IEA who made what I think is actually a fair point: charities who are against poverty should avoid treating inequality as the primary cause of poverty. Western charities can quite often score easy points in this way; yet the actual causes of poverty in a specific country may be influenced by any or all of the following factors:

  • The state’s failure to uphold the rule of law, including property rights
  • Inadequate physical and social infrastructure to enable exchange and cooperation
  • Exploitation by corporations, stealing resources and underpaying people
  • The failure to invest in talents, skills of local people
  • Dependency on Western charitable institutions that don’t create local capacity
  • Too much state control, incompetence or corruption
  • Trade regimes that protect Western farmers or others from competition

This rather random list already reveals that it is a significant mistake to think of poverty as merely a matter of redistribution. It is not. Poverty is also a function of our productivity, of our ability to get stuff done, and this is influenced by many different factors.

This list also reveals how important the role of the state is, even before we come to any question of redistribution. The state, in partnership with the institutions of civil society, is the institution that protects rights, develops and protects vital infrastructure, protects people from exploitation, negotiates trade deals and ensures that markets can function. It is a foolish liberal who underestimates the critical role of the state in protecting the economic institutions they cherish so much.

However in my Twitter debate three false claims also emerged:

  1. Taxes (and benefits) do nothing to reduce poverty,
  2. Poverty is only tackled by the Market, and
  3. The state is essentially unproductive.

These three interconnected claims perhaps mark the point at which liberalism tips into the extremes of neoliberalism. Each claim is untrue, and dangerously so.

Let’s take them in reverse order:

There is no doubt that the 20th century advocates of state socialism were far too confident of the state’s ability to do too many things very well. There are limits to what the state can do well. But there are also many things that we need the state to do and which are essentially productive. The state and its institutions (e.g. the creation of a valid currency) have been essential to social and economic development. This is demonstrated by examining the causes of poverty outlined above: economic development relies on effective state action. The state and the rule of law it guarantees are fundamental to most forms of human productivity in complex human societies.

At its core neoliberalism seems to be a form of idolatry – the worship of false idols. The market, which is essentially a useful tool (and like all tools its value is constrained by appropriate use – i.e don’t take a hammer to a screw) has been converted into a false god – The Market. Markets make poor gods for many reasons, but primarily because they don’t exist. A market is a space, not a thing; it is a vacuum; it is a space within which human beings trade stuff. Trading stuff is also useful preparation for doing other stuff, like making, healing, building, growing and creating. The market does not do any of those things – people do – but the market helps people because people can use trade to get the useful things they need from others. In other words, markets can help people be productive, but they are not productive in themselves.

Worshipping Markets is a a bit like worshipping banks. We forget about human effort and ingenuity, we forget about the amazing natural processes that create things, instead we worship the middle-men, the priests and the temples of liberal economics.

What is more we forget that, even at their best, markets are rather inadequate and imperfect institutions. We may all rather disagree about the extent and nature of those imperfections, just as we tend to disagree about what perfect means. But some of these ‘market failures’ are pretty obvious. I’ll just give two examples.

First, markets are very bad at organising a sensible and fair distribution of healthcare; because when it comes to healthcare humans are rather irrational. The fundamental problem is that we want to live, and we will pay almost anything to someone who promises to extend our lives, even to the point of impoverishing ourselves. So a free market in healthcare leads to lots of exploitation. That’s why the US system is twice as costly, but no better, than the UK system. Doctors are richer, healthcare companies make more money, but there is no real benefit for US citizens.

Second, markets inevitably increase levels of inequality because the winners increasingly dictate the outcomes to the losers. Anyone who has played Monopoly understands why monopolies are a bad thing. If you start to lose, you’ll probably keep on losing. That’s why we need tax and benefits; that’s why the state cannot avoid being drawn into trying to regulate or control the market for incomes.

Famously, in the 1970s, John Rawls argued that a limited degree of inequality might be justified if it gave people a better incentive to strive in ways that benefited the worst-off. Today this argument has been turned on its head. Some now seem to believe that any degree of inequality is justified because some inequality could provide better incentives. This is bad logic and bad ethics.

Poverty is a function of a failure in both productivity and justice. We need both to flourish in order to end it.

Figuring out what degree of inequality is acceptable and what practical mechanism are necessary to reduce inequality is also one of those practical things that we need the state to do. And this takes us back to the initial worry about extreme inequality. The fact that a small number of people control a great share of our wealth is worrying because it seems those people increasingly define what the state does. The election of Donald Trump as President of the USA reflects a further decline in the quality of our democracies and the growing influence of the wealthy oligarchs who may well believe that their own extreme wealth is good for everyone.

Well they would, wouldn’t they?

The Liberal Fallacy or Yet Another Argument for Basic Income

Liberalism, or neoliberalism, has many flaws but we don’t always focus on its biggest flaw.

You can see this flaw most obviously once you accept one of the most important axiom’s of liberal economics: if prices are flexible then the market will clear.

But what does that mean?

Well let’s begin with a simple example:

Farmers come to the market in order to sell their harvest. Shoppers go to the market in order to buy their food. The price is whatever money is exchanged for the goods. Now, if prices are flexible, then we can expect all the goods to be sold – the market will be ‘cleared’. When shoppers compete to buy some rarer item then its price will rise. When sellers compete to offload a less popular item then its price will drop. Eventually everything, even the most unattractive item should be sold as the price approaches zero.

Now the most obvious flaw in this account is that real markets don’t work like this:

The day finishes, and some goods are left over, even when there has been heavy discounting at the end of the day. This might be for all sorts of practical reasons – perhaps fewer people came to the market that day etc. But also the seller does not always accept the logic of liberal economics. He might insist on holding to his notion of a fair price – whatever the market conditions. Like the grandfather in Halldór Laxness’ The Fish Can Sing, who always sells his fish at the same price: On a day when there is high demand for fish he does not increase his price – he simply sells his ‘bargain’ fish quickly. On a day when demand is low he may not even sell his fish at all.

So, real markets are not like the pure markets of economics, not just because of the complexities of reality, but also because some people simply refuse to bend to the idea that the market should set the price. For the liberal this is a kind of irrationality: how can the fish have a value outside of the market mechanism? If nobody will pay your ‘fair price’ how can you imagine that this is its true value?

The liberal is competing with an older view (certainly the medieval view) that things really do have a fair price. And this is probably linked to Aristotle’s way of looking at things. Within the Aristotelian tradition all things have their true essence – their meaning or their value – which the wise can discern. But too often we see only the accidental properties of a thing – their semblance or their price. Within this tradition the market can no more measure value than the fool can find truth.

It seems to me that this debate about value has been at the heart of politics and society for some centuries. Liberals are modernists. The notion of an essential value is, for them, a fiction. Only the social mechanism of the market gives things a price. This may be sad and unromantic, they argue, but, for example ‘Your house is only really worth what someone is willing to pay.’ And unattractive as this is in some respects, as an argument it does have a certain power.

Today we can see these two competing perspectives playing out in the debate between those want to see greater market flexibility in wages, versus those who want to see greater rigidity, for example by the application of minimum wages, living wages or stronger employment rights. The liberal argues that, whatever the apparent disadvantages of zero-hours contracts, self-employment or reduced employment rights, any increased flexibility will improve market efficiency and so does benefit society in the long-run.

Liberalism may be rational but it is certainly unrealistic. Real markets don’t clear and real people certainly don’t behave ‘rationally’. In fact we all turn out to be a strange mixture of the modern and the medieval. When house prices went up by 360% in 11 years we became liberals, enjoying (if we owned a house!) the ‘rising housing market.’ [Interestingly this kind of jargon reveals exactly our confusion, for markets don’t rise or fall – they are just spaces.] But now that bubble seems ready to burst we have all turned medieval. We want the Government to bail us out and defend the ‘value’ of our house and to ensure that we don’t lose out from our own bad investments. Our sense of the fair price for our own home seems wonderfully flexible as long as its direction is upwards.

We are liberals when it suits us. Bubbles make fools of us all.

But this debate between fair-value and market-value is a sideshow; it does not reveal the essential flaw in liberalism. It cannot lead to any helpful answers to the fundamental questions of social justice.

The essential flaw in liberalism is much simpler – there is nothing in the market that will ensure the seller will get enough – enough to live on, enough to thrive, enough to support their citizenship. Market’s don’t care, they are not moral, they are not fair and they don’t need to ensure the survival of those who ‘come to the market.’

A flexible labour market certainly benefits employers, especially if they need to compete on price with organisations in countries who have much lower labour costs. Investors certainly prefer the cost of labour to be controlled or reduced employment securities. This reduces their liabilities.

But whatever benefits a flexible labour market offers to employers or investors, it still does not ensure that people will have enough to live on. Like the canny shopper, waiting until the end of market day, to see what price the unsold bananas might fall to, the employer knows that, when the seller is desperate enough, they will be able to buy the labour they need, at almost any price.

The essential flaw in liberalism is that, by its very logic, it will never provide a decent and secure income for citizens. To do so would be to undermine the market itself.

Of course, those who campaign for increased minimum wages or a living wage know all this. But they are forced to deploy the medieval argument – which while is attractive in many ways – is also fraught with many problems. They have been drawn onto the enemy’s territory. Their motivation is good, but perhaps their strategy is wrong. They seek to mitigate the market’s inevitable injustices, but they thereby accept that the regulation of the price of labour is the proper means of reducing social injustice. This brings with it a host of problems.

By arguing about prices we are arguing on the liberal’s territory. Instead, we must, as the Chinese say, lure the tiger from the mountains. We must start with need and justice.

This is how we can strike at the heart of the liberal fallacy. For, if the market cannot deliver fair and secure incomes for all, then perhaps so we must abandon the market for that purpose. Instead we must secure our basic income or our citizen’s income socially and politically. We must agree together what is fair, and distribute to each other the necessary resources for our basic or citizen’s income.

This is not to abandon the market for all purposes. It is to put the market in its place (in a more humble place – a secondary place). The market cannot ensure that we each have enough. So let us stop trying to make it. Instead we must create real income security together – we set a basic income and ensure that each citizen gets it. We must fix what is fair together and then we can let the labour market help us distribute our gifts and our talents between each other – at prices we are free to set ourselves.

This strategy has two further advantages over the mitigation of the market strategy which is currently being deployed by our allies.

First, it just lets the market do what is does do well – connect people’s needs to other people’s gifts. Price flexibility (once our basic income is secured) is a boon, not just to employers, but to employees, not just to customers but also to producers. If I love to write poetry, but the going rate for poetry is low, then I can sell myself cheaply, while knowing that I am doing what I really value. If I choose to do something that few others seem to value, like cleaning toilets, I can demand a higher price for my labour. We are free to decide what is important to us – in both buying labour and selling labour. We are no longer at the mercy of the market.

Second, we start to breakdown the illusion that the market can value us. Today we are constantly being told that all sorts of people are worth more than the rest of us and so are deservedly entitled to whatever salaries they award themselves – be they bankers, politicians, footballers or whoever. The price we pay for this exploitation of markets by the powerful is not only economic, it is spiritual. We are only too likely to believe the nonsensical idea that some banker is ‘worth more’ than some other person – perhaps the toilet cleaner. Constantly we forget what a proper understanding of economics can always teach us – there is no real relationship between value and price: water is cheap; diamonds are expensive; but it is water that we need to live.

Perhaps it is time to put the market in perspective. It is not a demon, it is not a saviour. It is just a useful tool for any society that understands that we are each worth infinitely more than our price in the labour market and that markets don’t take care of us – they never will. Only we can take care of us.

Ideal Markets or Real Markets

In public policy we use the word ‘market’ in radically different ways and in fundamentally inconsistent ways.

For the liberal (or if you prefer, neoliberal) the word ‘market’ is used to describe a special kind of human interaction – the ‘free exchange of goods or services at an agreed price’. The beauty of this liberal vision lies in the market’s seemingly magical ability to achieve three wonderful things at the same time:

  • It is a place of freedom – free individuals come together to bargain and exchange
  • It is a place of community – people make promises to each other and bind each other by contracts
  • It is a place of productivity – time, energy and money flow into the places which have the most value.

Of course, this vision of the market is just a beautiful ideal. In the real world:
The starting point is not fair, and advantages accrue to those already advantaged, and so freedom turns into exploitation.

When relationships of power are radically unequal then the community we create is atomised and elitist.
The most productive is not always the best; commerce can destroy nature, community, industry and even politics itself (as we are finding out to our cost in the UK).

And most liberals do know this. The market is their ideal, but they accept that in many areas there will be what they call ‘market failure’ and – for various reasons – it is recognised that the ideal market cannot really exist. So they will – to varying degrees – accept that markets must be controlled or an alternative system offered in their place. The market is for the liberal a ‘Platonic ideal’ – it may not be fully realisable – but we should strive towards it and use it evaluate the real.

Thus economics becomes the measure of man, not man the measure of economics.

Of course there are those who do not worship the market. These anti-liberals include socialists and conservatives. This may seem a surprising alliance and we often forget that there used to be a very different kind of conservative (small c) philosophy – one that valued King, country, religion, the local and the small. But this kind of conservatism now has nothing to do with the UK’s Conservative party. The Conservative party is now the leading ‘liberal’ party and it is no longer in the business of ‘conserving’ anything at all – except perhaps the interests of the rich and the powerful.

The anti-liberal thinks of the market not as a space but as a force:

  • The financial market is a malevolent force selling fraudulent products or gambling with our savings.
  • The housing market is crazy bubble where our own greed drives up prices to the benefit only of those who can escape it at the right point.
  • Markets drive the growth of monopolies, big business and the industrialisation of almost everything – markets even seem to kill the possibility of markets.

Of course socialists and conservatives also will accept the need for markets. Only the most zealous want to control food production, everyday shopping or enterprise. But the market is, for them, not an ideal space, but a demon, to be controlled and harnessed. At best its energy provides other resources and so it can be taxed to support the things the anti-liberal really values.

Until the 1990s the battle between the liberal and the anti-liberal was largely fought on the margin of the sphere of public services. Markets were for private goods and services; when it came to public services it was the state that was in control. There was a disagreement about what should be nationalised and what should be left free – but no disagreement that nationalisation meant – ‘outside the market’.

But this has now changed radically. Today it is quite common to hear people talk about markets for public services: the social care market, the healthcare market, the market for social housing. However these markets rarely have any of the qualities that the liberal associates with markets. It is not people, making free decisions, who buy these services – it is commissioners or governments. Here the word ‘market’ takes on a third meaning – roughly – ‘the stuff we spend public money on’.

So we are left with three entirely different and contradictory meanings for the term market:

  1. A space within which free, contractual and efficient exchanges can take place – the idealised market
  2. A force which can redistribute, steal or exploit resources and power – the demonised market
  3. An array of objects, services or products, perhaps purchased by the state or its agent – the phoney market

Of course when a word is so used and abused it is easy to lose patience and to simply abandon the whole concept. What is the value of the word ‘market’ when it means three contradictory things?

However I would like to make the case for a fourth use of the term – I would like to make the case for the market as an ‘agora’ – a free, protected and public space where a whole range of human activities can be carried out. The agora is not primarily economic – it is simply the space the community needs to collaborate and to work together. Business can be done there, but it is not defined by business.

I was very struck a few years ago to find, on a visit to Athens, that the ancient agora had been marked off by sacred stones. The purpose of these stones was to protect the agora from the private – from the invasion of the sacred space by people’s desire to extend their houses or gardens. It was sacrilege to privatise the market – the market was public property – divinely blessed.

What is more the agora was not just for shopping. The agora was for every kind of public business. The school master taught his students; philosophers sat on the stoa, a shaded area on the edge of the agora (hence stoics); government officers worked and ran meetings; and temples operated. The agora is messy and human – lots of stuff goes on – out in the public square. The agora even housed the building for weights and measures – the system for checking on cheats – for ‘regulating the market’.

Interestingly the agora excluded the Acropolis (the centre of religious life), the assembly which met on the Pnyx (the centre of political power) and the Areopagus (the centre of justice). Each of these institutions was based on one of the hills looking down over the agora from on high.

Perhaps it is time to leave the idealised, demonised and phoney markets behind us. Perhaps it is time to work out how to protect and cherish real markets – the agora – those essential public arenas in which we do stuff together.

Today these place will not just be physical – they will also be virtual – but they are essential. Without the agora we cannot be fully human.

What is Neoliberalism Good For?

It would be fair to say that the world of politics seems to be dominated by an ideology that we in the UK call liberalism and which argues for the primacy of freedom and the pursuit of individual happiness. This is an influential theory; but one that is full of paradoxes and perversities.

The most obvious is that we can’t even agree what to call it.

On the other side of the Atlantic liberalism means, roughly, what we would call Left-wing.

On this side of the Atlantic we use the term either to describe the thoughts of the centrist political party we now call the Liberal Democrats, or the entirely different theoretical tradition championed by sections of the Conservative Party – which is also sometimes called Thatcherism.

How confusing!

Many on the Left now call it neoliberalism – although I’ve never been able to distinguish ‘new liberalism’ from ‘old liberalism’. Perhaps neoliberalism is just code for the version of completely batty extreme Right-wing liberalism that nobody could believe in.

Usually, if someone is talking about neoliberalism they refer to Robert Nozick’s Anarchy, State and Utopia. But when I studied this very interesting book I got the sense that the author himself didn’t really believe his own theory. The whole thing is an elegant reductio ad absurdam of his own position. It seemed to be designed half in jest; moreover a few years later he outlined a very different theory in The Examined Life.

Even those radical Republicans who use liberal arguments are only half serious. Take for instance the Republican satirist, P J O’Rourke, who summarises his position thus:

The other secret to balancing the budget is to remember that all tax revenue is the result of holding a gun to somebody’s head. Not paying taxes is against the law. If you don’t pay your taxes, you’ll be fined. If you don’t pay the fine you’ll be jailed. If you try to escape from jail, you’ll be shot. Thus, I – in my role as citizen and voter – am going to shoot you – in your role as taxpayer and ripe suck – if you do not pay your share of the national tab. Therefore, every time the government spends money on anything, you have to ask yourself, “Would I kill my kindly, gray haired mother for this?” In the case of defence spending, the argument is simple: “Come on Ma, everybody’s in this together. If those Canadian hordes come down over the border, we’ll all be dead meat. Pony up.” In the case of helping cripples, orphans and blind people, the argument is almost as persuasive: “Mother, I know you don’t know these people from Adam, but we’ve got five thousand years of Judeo-Christian-Muslim-Buddhist-Hindu-Confucian-animist-jungle-God morality going here. Fork over the dough.” But day care doesn’t fly: ”You’re paying the next-door neighbour’s baby-sitter, or its curtains for you, Mom.” 

P J O’Rourke, Parliament of Whores, p.100

In other words, neoliberalism is secondary to “Judeo-Christian-Muslim-Buddhist-Hindu-Confucian-animist-jungle-God morality” which is another way of saying that there are much more important and truthful ideas than liberalism.

The point is that even many of the extreme advocates of neoliberalism don’t really pretend to take their own theory that seriously. Nobody but a lunatic would think that just pursuing your own selfish goals is a sensible way to think about your own purpose or about the well-being of society.

So if neoliberals don’t believe in neoliberalism, who does?

I think the paradoxical answer is that only the opponents of neoliberalism really believe in neoliberalism – but they believe in it negatively. It serves the same rhetorical purpose on the Left as a term like communist does on the Right. It is also socially helpful; if you are of the Left then you are united by your opposition to neoliberalism. It is not so much a straw man as a straw enemy.

Now I need to be careful here.

I am not suggesting that there are not plenty of greedy or self-interested people in the world. There are plenty. There are also corporate bodies that behave in ways that are motivated by avarice and which are profoundly damaging to our society.

Greed is real and greed is not good. Corruption is very real.

And I know that there are a few people who believe in the ravings of Ayn Rand or the musings of Robert Nozick. Although I don’t think these people are the ones we really have to worry about.

In my view neoliberalism has never been a coherent or attractive theory. What it is, is a bag of rhetorical devices that can be deployed to protect the interests of powerful elites. It offers rhetorical tropes – phrases and concepts – which if unexamined – lend depth to the self-serving policies of the powerful. But these devices not really rooted in liberalism – instead they take genuine moral concepts but twist them into narrow concepts in order serve their own selfish ends:

  • Our desire for freedom is whittled down to consumerism
  • Citizenship loses its meaning and is reduced to vain individualism
  • Virtue is emptied of real content and just becomes responsibility – looking after your own
  • Community becomes a market, and a particularly uninteresting kind of market
  • Government becomes the state, not something we do together, just an external device to keep us all in order

The rhetorical device works because it is starts with in something valuable. But the valuable concepts are not the concepts of liberalism. Something good is being suggested; yet by the time we find out what the liberal means by freedom, citizenship or virtue we are left with something toxic.

In practice the rhetoric of liberalism is useful to those who use it because it encourages people to leave well alone:

  • Why would you want to rule yourselves? Leave that to us.
  • Why would you want a community or public goods? Private goods are good enough for you.
  • Don’t worry about freedom. Why not go shopping instead?
  • Don’t worry about virtue. Just pay your taxes; we’ll do the rest.

Don’t worry leave it to us, leave it to the market, leave it to our contractors – we know just the man for the job.

Neoliberalism is not neutral – it turns out there are a whole class of people who get the job of running the minimal state, the markets and the corporations.

Perhaps I should join in the attack on neoliberalism. I have certainly had lots of good people telling me that I am foolish for not understanding its power or the threat that it presents. Perhaps it is naive of me to think that I shouldn’t have to attack a stupid theory – one in which no one but a fool would believe.

But I can’t believe attacking straw enemies is good for us. It seems to me that we run the risk of giving life to a monster – wasting our energy fighting something which does not really exist. And gross enemies sometimes get in the way of really examining what we are fighting for.

Meanwhile we fail to notice the way in which power and control is centralised in the hands of political and commercial elites – not because they believe in neoliberalism – but because they are greedy and arrogant – and because we have let them get away with it.

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