Swinging for the Fences: How the Market Economy Shapes Our Destiny
The market system –or “free enterprise economy”—is a marvelous thing. But it is not as purely beneficent as the market ideologues claim. One such ideologue, the late Milton Friedman, wrote a famous book with the title Free to Choose. He argued that if we get the government out of the way, and allow the market to function unimpeded, the free choices of individual human beings will control our economic destiny and lead to optimal outcomes for society taken as a whole.
I refuted that claim in a book with the title The Illusion of Choice. In that book, I argued that the market is great at some things, but lousy at others. And that it’s blind spots need to be corrected to get any kind of optimal outcome.
As in The Parable of the Tribes, and in contrast with the approach Friedman took, I examined not a snapshot of a particular moment of economic activity but rather a longer term time-elapsed film of how the society develops over stretches of time.
I showed that if a society fails to correct for the blind spots of the system, it will inevitably move, over time, into a future that is determined not by the choices of the people of that society but by the inherent logic of that powerful economic system.
In our world, particularly with our economic system being able to empower its agents to shape so powerfully the thinking of our citizenry, the defects of the market system are quite inadequately corrected for. The market economy is therefore one of the important “magnets” that pull us toward a future not of our choosing.
One more important point: in The Illusion of Choice, I frame my refutation on the supposition that the market is working just the way it is supposed to. I ignore, therefore, the whole problem of power for individuals and organizations within the system, and focus only on the power of the system itself.
Two problems I ignore in my critique (they’re important, but I chose to show the limitations of the market even when it works as its ideologues propose):
1) The problem of “market power,” like huge corporations that can render the system uncompetitive. I grant what isn’t true that we’re dealing with buyers and sellers in such abundance, and dealing with commodities so indistinguishable, that no one is able to bully or coerce anyone else, or get any kind of monopolistic corner on the market.
2) I ignore the reality that the inequalities that grow out of our economy lead to inequalities of political power. I ignore the problem that our market economy corrupts our political system with its ideal of the equality of “one person, one vote.”
Even ignoring these problems, the market economy –unless adequately corrected by collective, political decisions democratically arrived at—really does shape our destiny, in some ways that serve human welfare but also in some ways injurious to it.
Here’s a passage from the jacket copy of The Illusion of Choice:
“[T]he market system unfolds according to a logic of its own, shaping everything within its domain –the landscape, social institutions, even human values—to serve its own inherent purposes…
“The market attends well to some dimensions of human life and does not even see others. It is sensitive to those values pertaining to what can be bought and sold but is blind to others –such as the integrity of the natural world and the quality of human relationships—that cannot be turned into commodities. It is impervious to the costs of tearing apart the larger wholes –families, communities, the biosphere—that are vital to the quality of our lives.
“[M]ainstream economics takes too static a perspective. Systematic errors wreak damage over time.”
In the next round regarding these systemic forces, I will put some more flesh on this idea that the uncorrected market economy takes choices away from us as importantly as it makes us “free to choose.”
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February 3rd, 2013 at 8:26 pm
There are market imperfections which can cause serious problems for society like externalities such as air and water pollution resulting from corporate production which impose health costs on society which aren’t captured in the balance sheets of corporations. Only government regulation can prevent these societal costs. Another example of a problem with an unfettered economy is monopoly power which extorts excessive returns for the monopoly’s products.
February 3rd, 2013 at 9:29 pm
Yes, the kind of externalities you mention are indeed an important dimension of the market’s blindspots. As for monopoly power, and any other form of market power, that’s a dimension that –as I say in the text above– is not part of my critique. It’s an important problem, but it’s one of a different sort.
February 4th, 2013 at 2:46 am
Ronald — You bring up the question of how to prevent serious negative consequences to the environment in our economic system. One way is to democratize business: Our businesses should become worker-owned, democratically run, and locally sustainable.
In a blog last night, someone asked how having democratically run businesses would be good for the environment. Here is my answer:
There are two different tracks on which worker ownership can help the environment. One, the more obvious, is that when a business in owned by people who live in the community the business is in, they want their community to be clean and sustainable, they have the control to make the business green, and they have a conscience, which a big corporation does not. They are also accountable to their own community, which is pleased to patronize a local company that preserves local environments.
Two, the less obvious one, is that “publicly owned” corporations are set up so that their worth pivots on the price quoted for their stock. The price of their stock is determined by how many people want to buy it. The people who buy stock have no actual interest in any aspect of a company except its accelerating profits. So, a corporation is valued on its accelerating profit. Note that there is a big difference between being profitable and having an accelerating profit: a worker-owned business can go on happily year after year making a profit even if it is the same percentage of profit every year, while a stock-holder owned corporation cannot — it needs, not just the profit, but the percentage of profit to increase every year. This means that a corporation is compulsively focused on increasing its percentage growth of profit, to the detriment of the environment, the workers, the planet, the world, the economy, and justice. They care only to increase their percent. The only way to increase the percentage of profitability is to decrease the cost of production: cut your costs. Costs means materials or wages. So they cut wages. And then next year have to do it again. This never ends, because the need to increase the percentage of profit is a cruel master — it will go to 0% for the workers if we let it. But, in all this mad dash to increase the profit, any care for the environment is completely lost — they cannot afford it. And, even if you show them that being green can be profitable, can save on production costs, many of them will not change over because change is costly (fiscally and psychologically).