Market economics is under threat. Dominant since the 1980s, rising commodity prices and falling stock markets suggest that neo-liberalism has failed.
From the 1950s, market-based think tanks such as the Institute of Economic Affairs plotted a free market counter-revolution. The economic liberals took over a wing of the British Conservative Party; Mrs Thatcher used their key ideas to privatise vast swathes of the UK economy, sell off the council housing stock and assault the unions. The market ideology was entrenched under Blair and Brown, and the Liberal Democrats too have moved in a firmly neo-liberal direction. In the USA, Reagan pushed a similar market based agenda and the Washington consensus of free markets, low taxes (especially for the very rich), free trade and attacks on workers swept the globe.
Yet markets, far from being efficient, create not just injustice but economic chaos. Food prices are rocketing, finance capitalism has brought the UK and US economies close to full blown recession and across the world, marketisation has seen the paradox of poverty rising with accumulation. Keynesian critics and moralists frightened by the neo-liberal nightmare abound, but we need to take the analysis a little deeper.
Let’s start with the death of the British postal service. Inspired by market-based ideology, the European Union has decreed that all postal services have to be opened up to the market, and the UK government is enthusiastically implementing these directives. As a result, we have already seen seen hundreds of post offices closed, and a further 2,500 are now earmarked for closure. Postal deliveries have been cut from twice to once per day, deliveries on Sunday have been stopped, prices have been increased, and an obscure system of delivery charges based on the shape of the envelope has been introduced- together with an assault on workers pay, conditions and pensions.
In the end, 'liberalisation' of the postal service will lead to disaster.
The postal service is what the standard economics textbooks call a 'natural monopoly', and competition is leading to a loss of efficiency that pushes up average costs. With a 100% market share, i.e. one body dealing with all the mail, it is possible to spread the costs of delivery systems to minimise costs. It's straightforward: if you have two, three, five or twenty different competing postal services... you need two, three, five or twenty sets of vans, posties, sorting systems, etc. With competition there is a huge pressure to push down costs by cutting the level of service and the pay and conditions of the workers, but the costs of several or many postal services will always be higher than the costs of a single service.
Post Office closures along with all the other cuts will further push down the quality and quantity of the service to the public, competitors will cherry-pick the best routes, and the destruction of the service will accelerate. Unless prevented from doing so by government regulation, one privately owned monopoly will eventually dominate the market; either way, it will be difficult for the majority of us who can't buy into an elite service to have our mail delivered.
Another example is the health service. Gordon Brown has signalled the further privatisation of UK healthcare, announcing that NHS hospitals will be managed by corporations. This is another area where the inefficiency of the market is textbook-obvious. Markets, even according to their sincere academic defenders, only work if information flows freely between competing producers and consumers; information must also be symmetrical- that is, buyers and sellers must have the same knowledge of a product. In reality these conditions rarely apply, and in the healthcare market they never apply.
If the sellers have more information then they can, and will, exploit the buyers. The provision of unnnecessary medication and procedures is a huge temptation in market based health systems. If one is paid according to the number of operations undertaken, one will be tempted to cut off more legs, pull out more teeth and transplant more livers. At the same time, those who cannot afford to pay will end up going without the most essential treatments.
The USA, with its pervasive private system, spends more per capita on healthcare than any country in the world but has very indifferent health statistics. The World Health Organization in 2000 that found the overall performance of the U.S. health-care system ranked 37th among the countries included in the analysis, while spending $7,000 per capita. Many low income Americans have little or no access to health care. In terms of health per dollar efficiency, Cuba beats the USA easily.
Pharmaceutical corporations also distort health care- pushing up costs, driving up ill-health and bankrupting health care users. It’s easy- invent a new drug, patent it, enjoy a 100% monopoly and see the cash roll in. The scandal of corporate opposition to cheap generic AIDS drugs in developing countries is the most obvious example but there are many others.
The patenting system, through which the Pharmaceutical transnationals draw their huge profits, is designed to prevent one of the most important things which make it possible for markets work efficiently according to the pro-market theory- the free flow of information. Sarah Boseley wrote in January 2008:
Patents, argue the drug giants, are their lifeblood. They have to keep the prices of their drugs high as long as possible - at least in the rich countries - in order to recoup the vast costs of inventing and developing new medicines. Without their cutting-edge research, we won't have breakthroughs in cancer or heart disease which allow us to live longer, happier lives. But does it really cost $800m to bring an innovative new drug to market, as the companies insist? That's a fraught issue. Critics argue that this hefty price tag not only includes losses on drugs that don't make it, but also - and more questionably - the costs of marketing and advertising, which, these days, are higher than the spend on research and development.
Big pharma spends billions of dollars on marketing, with a huge system of bribery used to buy doctors who then prescribe often indifferent or even dangerous products. Philippe Rivière noted in 2003:
The media just loves stories about bribery and corruption in the corridors of political power. Yet when GlaxoSmithKline (GSK) was under scrutiny, as it was in Italy earlier this year, the media was almost silent about it. The Italian police investigated 2,900 doctors: 37 employees of GSK Italy and 35 doctors were indicted for corruption, while 80 medical visitors were accused of making illegal payments to doctors who agreed to prescribe GSK products rather than generic equivalents. The only reports on this massive scandal were in the British Medical Journal (BMJ) and the Guardian. During the investigation, the police set up an elaborate computer system - Giove (Jupiter) - showing how GSK commercial representatives could track prescriptions made by doctors in their pay. According to the BMJ, 13,000 hours of phone taps give a clear picture of the relationship between prescriptions issued and the value of presents received by the doctors. Gifts included 'medical' trips to the Monte Carlo Grand Prix or to the Caribbean, and cash payments of up to $1,700. Similar occurences have been discovered in the United States and Germany.
I could go on; you don't have to move very far from a standard economics textbook to identify many of the problems caused by the increased role of the market in the real world.
But there is plenty that is missed out by the analysis inherent in conventional economics. Marx provides us with some essential insights. Markets are based on the creation of exchange value... in other words, piles of cold cash. The aim is to turn cash into capital, and capital breeds more cash. The obvious point is that markets work to breed money, they don't work to benefit human beings.
One of the basic categories in Marx's political economy is the contradiction between use values and exchange values. If something is useful but does not produce cash it is of no use in a market-based system. If something is wasteful, ugly, destructive, dangerous or addictive but generates cash it is promoted by the market. Postal services and health care are again good illustrations. If we mail fewer physical items and send less post this tends to save energy and resources; however, with marketisation more mail means more profit.
There is a basic contradiction between markets and ecology. Make items to last longer, promote sharing where appropriate, make it easy to repair items and we can become prosperous with less strain on ecosystems. But consuming less cuts profits. Marketisation will eventually lead to the destruction of the basic life support systems of the planet. In healthcare- if we eat better, suffer less stress, in other words if we have a healthier society, demand for high cost pharmaceuticals will fall, thus profits, share values and dividends will fall for pharmaceutical corporations.
Privatisation and marketisation are forms of enclosure. Markets take things which are free: fence them in and make us pay. Freedom is destroyed by markets, not enhanced.
Markets tend to concentrate wealth, and therefore power, into the hands of an ever smaller minority. This was Marx's observation during the 19th Century, and it is amply demonstrated by the experience of the extension of markets since the late 20th Century. But the point often forgotten is that inequality reduces the access of those with less income to resources, especially health care and education in market based societies.
Amartya Sen, the Nobel Prize winning Bengali economist, observes that this means that relative poverty can be turned back into absolute poverty. While the economy may grow, removal of access to resources can be even more damaging in wealthy societies than poorer ones. He has noted, for example, that this effect explains why African-Americans have lower life expectancy than many citizens do in developing countries. Sen, of course, despite being one of the most imaginative economists on the planet, still sees markets as a force for progress but it is difficult to deny that the inequality that he challenges is an inevitable by-product of their operation.
The USA is both one of the most market-based and one of the most unequal societies on the planet, and the inequality is rising. Walter Benn Michaels noted recently:
Readers who are familiar with the jargon of economic inequality will have an immediate sense of what it means to say that equality in America has declined when I tell you that in 1947, at the height of Jim Crow and the segregationist laws in the South, the US Gini coefficient was .376 and that by 2006, it had risen to .464. Since on the Gini scale 0 represents absolute equality (everyone makes the same income as everyone else) and 1 represents absolute inequality (one person makes everything), this is significant. Back then, the US was in the same league as the countries of western Europe, albeit a little more unequal than them; today we’re up there with Mexico and China. In 1947, the top 20% of the US population made 43% of all the money the nation earned. In 2006, after years of struggle against racism, sexism and heterosexism, the top 20% make 50.5%. The rich are richer.
Markets also breed chaos- social, ecological, and economic. Karl Polanyi, writing prophetically in 1944, argued that the extension of the market would bring destruction:
To allow the market mechanism to be the sole director of the fate of human beings and their natural environment, indeed, even of the amount and use of purchasing power, would result in the demolition of society. For the alleged commodity ‘labour power’ cannot be shoved about, used indiscriminately, or even left unused, without affecting also the bearer of this peculiar commodity. In disposing of a man’s labour power the system would, incidentally, dispose of the physical, psychological, and moral entity ‘man’ attached to that tag. Robbed of the protective covering of cultural institutions, human beings would perish from the effects of social exposure; they would die as the victims of acute social dislocation through vice, perversion, crime and starvation. Nature would be reduced to its elements, neighbourhoods and landscapes defiled, rivers polluted, military safety jeopardized, the power to produce food and raw materials destroyed.
The trick is always to present something 'social' as natural and therefore inevitable. Markets are portrayed not only as 'good' but unavoidable. However, the historical record shows that in most previous societies, markets were peripheral; Polanyi remarked:
Market economy implies a self-regulating system of markets; in slightly more technical terms, it is an economy directed by market prices and nothing but market prices. Such a system capable of organizing the whole of economic life without outside help or interference would certainly deserve to be called self-regulating. These rough indications should suffice to show the entirely unprecedented nature of such a venture in the history of the race.
Let us make our meaning more precise. No society could, naturally, live for any length of time unless it possessed an economy of some sort; but previously to our time no economy has ever existed that, even in principle, was controlled by markets. In spite of the chorus of academic incantations so persistent in the nineteenth century, gain and profit made on exchange never before played an important part in human economy. Though the institution of the market was fairly common since the later Stone Age, its role was no more than incidental to economic life.
We might add that attempts to totally marketise society may end up taking us back to the later Stone Age.
There are alternatives to marketisation. The Hayekian critique of state control of postal services is entirely misplaced. Some things need to be organised centrally. Who is is oppressed by getting letters on time? The British public are begging for state control of postal services, transport, and other utilities like water and health care. However, 21st Century socialism is about diminishing not just the market but also the state. It's about genuine participation. For example, the potential of open source and wiki production is part of the Bolivarian revolution in Venezuela. Human beings are creative- we can produce useful things, and we don't need to be told what to do by a paternalistic state or bribed by the market. From the decentralisation of Cuba’s energy system to the Venezuelan promotion of workers' control of production, we find that 21st Century socialism looks a lot like the 19th century communism of Marx, that would abolish the law of value and make way for the withering away of the state.
Creating an economy that provides prosperity, promotes democracy, frees up human creativity and maintains ecology, means promoting in practical terms 21st Century socialism, not just in Caracas but Camden. It means winning a war of ideas. With the gains of the Latin American left and the obvious failures of neo-liberalism the time is ripe. The left, in all their diversity, need to start talking about economic alternatives.
Derek Wall is the male Principal Speaker of the Green Party of England and Wales. He blogs at http://www.another-green-world.blogspot.com/
21st Century Socialism