Tuesday, 8 November 2011

Why market critics still have questions to answer

The protesters outside St Paul’s couldn’t be more clear: it’s the market that has ruined this country. Or, more accurately, the belief that the market dominates our lives. The charge is not new, yet the pitch of those claims has reached dizzying heights after the financial crisis and the economic downturn of 2008. 
There are two things that are conspicuously missing from the criticism of the market. One is a good analysis of what markets are for. The other, the articulation of a viable alternative. Here are some comments on how to fill this blind spot. 
Public debate often conflates free market with un-regulated market. In fact, as Hayek made clear many decades ago, these concepts are not exchangeable. The lack of regulation in the market place means nothing else but the absence of freedom. The freedom to sell and buy is conditional on the application of strict rules that allow people to chose in an un-coerced manner. Where monopolies develop and price cartels emerge, the freedom to chose is significantly curtailed. Hence a functioning market requires good regulation. A free market is only one that is effectively regulated. 
The critics of the market often think that the play of market forces gives rise to social and economic inequalities. That may be so, and it raises some important moral issues about how we mitigate the effects of the market in a modern society. What critics assume in the wake of this argument, however, is that this renders the market an unacceptable and morally repugnant vehicle to exchange goods. 
Yet this means holding the market to standards it is by no means supposed to meet. The moral aspect of markets hinges on the ability of individuals to operate freely and fairly within the regulative framework that exists at any given time and which applies to everyone without exception. It’s the potential of the market to offer a space for individual self-fulfillment and self-determination that speaks to its moral dimension. Whether this leads to unacceptable inequalities in society is a question of political import, not something for which we can find the answer in any philosophy of the market itself. 
Downscaling the expectations of what markets can and cannot do opens up a more plausible perspective on what markets are for, the aspect that the critics at St Paul’s have so far failed to address. 
Markets are not primarily means to make money or enrich some at the expense of the few. Markets are mainly the most suitable mechanism to establish the value of things in society. This is not so because everything is ‘marketable’ but because markets allow us to accumulate a myriad of pieces of information that we otherwise would not be able to obtain. This is where Hayek made his most important contribution to the debate on markets and society, something that is echoed in the thinking of even left-leaning liberals such as Surowiecki (see his book ‘The Wisdom of Crowds’). 
In effect, markets are the centre piece of a ‘discovery process’ about the needs of human beings and their ability to engage with each other in economic exchanges. In other words, markets function as a mechanism to aggregate knowledge about those human needs and wants and transmit this knowledge to the producers of goods. Since knowledge about human wants is highly fragmented in society, no central authority can effectively gather this information on a national scale, although we certainly have tried hard to achieve this in the past through nationalisation of industries and economic planning. 
And it is here that the protesters outside St Paul’s still have to develop a viable alternative to markets. If they want to jettison the market as a mechanism revealing human preferences and the value of goods through a free and fair exchange, they need to explain what is to take its place. What has previously been a main candidate for this, a dirigist planned socialist economy is not an option anymore. Some hard thinking is in order on their part. 

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