In a time when supposedly nothing is taboo and anything goes and everything is up for re-evaluation, it's as close to an untouchable taboo catechism as there is in current times: Markets (by which I refer to the formal economic institution of markets) are awesome. Markets are efficient. Markets can do no wrong. Markets are the greatest economic system humans have created, and ever will create. Markets are the best thing since sliced bread and multiple orgasms.
And yet, with just a little bit of effort reading around, I've found how this market mythology is grossly wrong. In my "spare" time over the years, I've looked at dissident literature regarding economics, and I've found what seem to be some considerable problems with markets as a formal institution, and a reason why markets — the institution comprising rivalrous buyers and sellers — are fraught with problems. I can even make a list of ten problems with markets.
"The Political Economy of Participatory Economics", a book by Michael Albert and Robin Hahnel, lists some of the problems with markets. I include the reasons outlined in their book as the first five reasons in my list:
1. Commodity fetishism: Let me quote from the definition that Albert and Hahnel provide:
Outside each firm, relations between people and things or things and things remain evident, but relations between people and people are obscured. This, of course, has been termed "commodity fetishism," and its corrosive ills are independent of ownership relations. For workers to comprehensively evaluate their work they would have to know the human and social as well as material factors that went into the inputs they use as well as the human and social consequences their outputs make possible. But the only information markets provide, with or without private property, are the prices of the commodities people exchange.
The absence of information about the concrete effects of my activities on others leaves me little choice but to consult my own situation exclusively. But the individualism this leads to will impede solidarity and efficiency.
2. Antagonistic roles: Buyers compete against sellers with bargaining power. Sellers compete against other buyers for market share. Buyers compete against other buyers for goods that are rivalrous (only one of us can have that sports car). What's more, those who act nicely in markets are undone by those who hold no compunctions ("no good deed goes unpunished"), not necessarily because of some pathology of one's opponent but because markets disincentivize solidarity. Like the protest sign says: Don't blame the victim, blame the system.
3. Markets foment hierarchy: What, you expect firms to be noncompetitive internally when they've got a perpetual competition to wage externally? Far from it. If you leave be that competitive pressure external to firms to compete, that pressure will seep its way internally to firms. If the stuff of a firm's insides are tasks and influence, then that pressure to compete will shape the internal operations of a firm. Tasks are arranged hierarchically according to skill, where those tasks that are empowering and desirable are monopolized by a relatively small number of hands, and those that are less empowering and less desirable are more common. The result is a strict hierarchy along lines of command and control: Orders come from the top down, obedience comes from the bottom up.
4. Antisocial bias. Quoting again from Albert and Hahnel:
[Markets]…are biased against provision of goods with greater than average positive external effects. The fact that markets systematically overcharge users of goods with positive external effects and undercharge users of goods with negative external effects is well known to traditional economists. But what is not readily admitted is that external effects are the rule, not the exception, because this implies that market prices generally misestimate social benefits and costs and markets generally misallocate resources. Coupling recognition of this bias with an understanding that consumers eventually bend their preferences toward relatively less expensive offerings and away from relatively more expensive offerings helps explain why markets inexorably produce egocentric behavior and antisocial outcomes.
5. Markets and coordinatism. There is a left critique of left economics that goes as follows: The class model of economics predominant within the history of the left assumes two classes — an elite class of owners and a larger class of the disempowered (or to invoke a segment from the Simpsons character Krusty the Clown, "Worker and Parasite"). One major problem with this model is that it overlooks a third class of conceptual workers, who wind up becoming the new elite and leaving class relations pretty much intact. This very same "coordinatist" critique also applies to markets, as market allocations (quoting from Albert and Hahnel again) "disempower executionary workers and empower conceptual workers. That this can lead to popular apathy, egocentric personalities, and a new ruling class of coordinators is clear. And nothing in the historical experience of Yugoslavia [the most frequently cited example of markets and coordinatism] suggests otherwise."
In addition to these reasons, I can list five other problems with markets.
6. Markets assume unrealistic circumstances about knowledge: The assumptions that markets make regarding an idealized form border on comedy. For example, market participants have perfect information of all circumstances at all times, and prices are immediately adjusted once circumstances so dictate. In actuality, information asymmetry in markets is the normal circumstance rather than the exception. The process for establishing information asymmetry even has a name: "screening". And in the real world, information asymmetry held by corporations or other powerful market entities are rationalized under the rubric of "trade secrets", but the effects of that asymmetry are far from secret.
7. Markets ignore public goods: The best passage on this count is in Robin Hahnel's book "The ABC's of Political Economy." In a passage on public goods, he writes:
When individuals buy public goods in a free market they have no incentive to take the benefits others enjoy into account when they decide how much to buy. Consequently they "demand" far less than is socially efficient, if they purchase at all. In sum, market demand will grossly under-represent the marginal social benefit of public goods.
Some wait for others to buy the public good, upon which they can benefit without having to pay themselves, thus leading to a kind of "prisoner's dilemma" regarding public goods. The phenomenon even has a name — the "free-rider problem".
8. Markets ignore externalities: A market only takes into account the immediate effects of the transaction between the buyer and the seller. Any other effects resulting from the transaction are considered "external", and ignored in the costs of a market. Hence, these effects are called "externalities". It's a big problem, for two reasons: Reason one: Externalities, as Michael Albert put it in his book "Parecon: Life After Capitalism", "are the rule rather than the exception", and he quotes the economist E.K. Hunt who says "most of the millions of acts of production and consumption in which we daily engage involve externalities". Reason two: Despite being ignored, externalities skew the cost in a market, thus leading to snowballing effects that might not be so easy to ignore (I'm looking at you, anthropogenic climate change). Some reformers have raised the call for a true valuation of those externalities, except that those costs are notoriously difficult to gauge in a market.
9. Markets tend towards monopoly: Let me quote a brief passage from Robert McChesney's excellent book "Digital Disconnect", in a section where he discusses monopolies: "The dream scenario [for a capitalist] is to go to market and discover that you are the only one selling a product for which there is demand. Then you can set the price, not have it determined for you. This greatly reduces risk and increases profits. That is why so many of the great fortunes have been built on a foundation of near monopoly." At the same time, "pure monopoly…almost never exists. Instead, capitalism tends to evolve into what is called…oligopoly" and "the price in an oligopolistic industry will tend to gravitate toward what it would be in a pure monopoly[.]" I recently interviewed Bob McChesney for a radio show I produce, asking if he could provide any examples of markets that don't tend toward monopoly, the example he mentioned was "hot dog vendor at a football stadium" where the barrier to entry is low and the profit levels are modest. But for the large scale industries with sweeping levels of profit, this tendency towards monopoly holds.
10. Markets spawn corporations: Let me quote a passage from a presentation I gave:
For our purposes, I emphasize the competitive nature of markets in this definition of markets: an institution of buyers and sellers where buyers and sellers are pitted against one another in a zero-sum game; that is, someone gains at the expense of someone else's loss, and vice-versa. Granted, it is possible to gain money and power in markets without doing so at the expense of someone else, or where both parties can gain, but it is clearly also possible (and common) to succeed in markets by taking metaphorical candy from a metaphorical baby.
Since winning is obviously better than losing, and since one can gain at the expense of others in a market, it makes sense to behave in a brutish fashion in a market — to always behave in a way that would take advantage of others. That is, it's rational to become a monster, or exhibit behavior like that of a monster, in a market. One rational response in this context is to fight fire with fire, and become a monster in response. Then it becomes a matter of monsters fighting other monsters. And the bigger the monster, the better the chance to win.
And that's where corporations come in. A corporation can be thought of as the equivalent of a monster in a market economy, and in a competitive context it makes sense to develop into a monster to win those competitions. (This also explains, I think, why markets tend to consolidate — amid competition, participants are eliminated through buyout or attrition or both, so that there are fewer players in the game, and markets as a result wind up concentrating.)
Since markets serve as spawning grounds and as a source of strength for corporations, proposals which incorporate markets in their vision, I think, are inevitably flawed. Provisions can be put in place to mitigate the negative effects of markets, just as we see in present-day efforts to oppose corporations, but corporations have a powerful incentive to fight back, and they also have the muscle thanks to the zero-sum predilection of markets to win a lot of their fights.
So I say, if you oppose corporations, oppose markets. If you want to abolish corporations, abolish markets.
Haughty words, to be sure, but if you abolish markets AND you're against command planning, what else is there, or what else could there be? I'll begin the discussion of that in my next post.