13 February 2007

Market, Schmarket!

When was the last time you felt really happy? If you think back to that time, did the feeling arise from anything you bought in a market using money? I can fairly confidently predict that in most cases the answer is no. As a species we are brought delight by the birth of our children, by a curious juxtaposition of ideas, by the misty beginnings of a glorious spring day. The tragedy of the modern economy is that, although the well-springs of our joy are found in our shared humanity and our beautiful planet, we have allowed ourselves to become enslaved to a market and its hegemonic ideology.

It has become a cliché of the political debate that if something fails it should be ‘marketised’ and this will solve the problems. This is now a general solution to political problems that is proposed for areas as diverse as depressed local economies and over-crowded hospitals. In spite of the images of beast-infested jungles that abound in the marketeers’ discourse, this solution is not seen as throwing a group of vulnerable people to the lions; rather it is offered as a panacea for all the ills of a late capitalist society and economy.

If, as is often the case, this solution fails, it is not reversed. We are told not that the market as a system has failed but rather that this particular market has failed, and it is generally concluded that the failure results from the fact that the market was not ‘free’ enough. Although Joanna Bloggs can clearly see that a train system does not work well within a culture of competition she is silenced by the ideologues who will offer the free marketeers an infinite number of opportunities to kill consumers, whether from BSE or the string of rail crashes. So convinced are they of the supremacy of their market mechanism that they will accept these sacrifices to the market fetish in their own societies, and numerous more overseas.

So the dissection of the market as a concept is essential before we begin to rebuild our economy. The first step is to question what we really mean by the market. For managers and politicians it is simply shorthand for an economic structure that advances their ideological position; but economists actually mean something by it. They are the keepers of the holy grail of the market mechanism, whose beautiful qualities are passed on to all students of economics within a year of reaching university. The problem is that the central assumptions on which the claimed supremacy of the market system is based are universally flawed and anachronistic. I will unpick these individually in a few forthcoming posts.

This task is not intellectually demanding. Testing the market against reality invariably results in its demonstration as a hollow icon. However, if you try publishing a swingeing attack on this ideal view of the market as the best system for the distribution of goods, not to mention money and people, you will find your arguments dismissed on the basis of naivety. The attack is unfair, the economists will claim, because nobody really believes the world works that way. But if not, where is the justification that the market is the best system? And, perhaps more importantly, why is this non-existent ideal system taught to all first-year students of economics? Here is the answer given by one standard introductory economics text:

These assumptions are very strict. Few, if any industries in the real world meet these conditions. Certain agricultural markets are perhaps closest to perfect competition. The market for fresh vegetables is an example. Nevertheless, despite the lack of real-world cases, the model of perfect competition plays a very important role in economic analysis and policy. Its major relevance is as an ‘ideal type’. Many on the political right argue that perfect competition brings a number of important advantages. The model can thus be used as a standard against which to judge the shortcomings of real-world industries. It can help governments formulate policies towards industry.

Here is the response to this question provided by the ‘hints to teachers’ book that accompanies the undergraduate text, Parkin and Kin[i] Its authors being by conceding that ‘perfectly competitive markets are quite rare in the real world’ (no examples are given), but continues that there are three important reasons to continue to propagate this false view of the economic world:

1.Markets ‘quite closely approximate perfectly competitive markets’;
2.The theory allows us to discuss these ‘competitive forces which are at work in all markets’;
3.The ‘model’ can be used as a ‘benchmark’ against which to ‘evaluate relative allocative efficiency’.

This paragraph constitutes a fascinating admission of intellectual manipulation. It explicitly states the theory of perfect competition as an ideological tool rather than a scientific theory. Without it governments would not be able to justify their policies so, although it is a completely inaccurate portrayal of the world we live in, it is of vital political importance. This first makes it clear that, before the market can be brought up as an ideal, the arena it is being introduced to needs to be justified as being at least approximately capable of supporting the ‘ideal’ and non-existent market in which the efficiency of this system was justified. In fact, as will be demonstrated later, this cannot be done in the market for tea-bags, never mind in that for health care or labour.

The second point generalises the relevance of the discussion to all markets. But point 1 has already accepted that, rather than all markets demonstrating these competitive forces, in fact very few, or perhaps none, do. What are these ‘competitive forces’ that really exist in all markets? They have not begun to be identified. Unperturbed by this contribution the authors forge on to point 3, forcing the world to conform to an unattainable model.
Perhaps most telling is the claim that this ‘model’, meaning something that is not real, which does not exist in the real world, can now be used as an ideal against which we can compare other system of allocation which do exist in the real world. In other words we can assess how efficiently tea-bags are being distributed and if this does not match up to our model we can legitimately criticise it, even though we are aware that our model is an impossibility. It is at least admitted in black and white that, like the Camelot of the Monty Python film (the Holy Grail one), the market is ‘only a model’, it is a chimera against which a real system can be compared, against whose perfection we who exist in the grubby world of monetary exchange can match our imperfections. This is a far cry from the laws of physics claimed by those who use market theory to justify strict competition laws.

[i] Parkin, M., Cohen, A. J., King, H. B. and Spencer, D. E., Economics: A Study Guide (Wokingham: Addison Wesley, 1995).

1 comment:

  1. I have just come across your blog. Amazing....glad to know someone out there is speaking the truth about these crazy mainstream economic ideas. Keep it coming, please!