Virtues and Vices of the Market

...It triggers action in response to supply and demand, offers and orders, and incentives that provide opportunity...

...Product or service promotion caters to every human weakness...

...For in a Market-dominated society, what can be sold determines what is produced...

...This can be seen in the "tax revolts" in Europe and the United States in the last two decades, which also had repercussions in the Scandinavian countries, including Sweden...

...The Market process generates cyclical SUMMER • 1990 • 357 To Market, To Market and chronic unemployment, bankruptcies, mass layoffs, over- and underproduction, strikes and lockouts, and many other kinds of economic warfare and social tension...

...In turn, what is produced determines the allocation of capital and the employment of labor...

...Societal Guidance Understanding the direction in which the Market is likely to move in the next few decades is critically important to an assessment of its capacity to accommodate solutions for outstanding problems...

...A chain-reaction was started—what before was merely isolated markets was transmuted into a self-regulating system of markets...

...The market of modern times cannot be understood if perceived simply as the continuity of barter, trade, commerce, and so on that served organized societies throughout history...

...The mass of consumers who make their "buy" decisions through the Market process (so-called consumer sovereignty) exert unequal economic weight and consequently have unequal impact...

...Referring to this historically unique institution by capitalizing it as a proper noun (a practice recently initiated by Robert Heilbroner) enhances clarity...

...Thus all economies are a mix of the Market and political decision making...

...And now they seem also to believe that the market can accommodate the transformations necessary to achieve social democracy's most far-reaching goals...

...The last thing any nation needs or will ever want after the debacle of the Stalinist model SUMMER • 1990 • 359 To Market, To Market is an administrative-command economy (misnamed "planning...

...True, multinationals no longer fly a single flag...

...Clinging to the Market, the negation of societal guidance, we might not even come in second...

...The Market is not a surefire prescription for the "wealth of nations" because its acclaimed incentives, acting as a spur to economic development, are also historically specific...

...This calls for conscious, deliberate, and coordinated measures to mobilize a nation's resources...

...There is good reason to believe that the sharp shift in income from earned to unearned during the 1980s will be reflected in rising class conflict in the 1990s...

...But, regardless of how the problem is managed, there are political limits to the diversion of funds from the private sector to the public sector via taxation...

...But does this frequently cited evidence suffice to sustain the view that the market has proved itself to be the most feasible—if not the only—economic institution for the optimum development of productivity and, above all, for the most rational allocation of goods and services...

...3. The limits of the market's susceptibility to goal-oriented social policy...

...the puzzle of insatiable wants after basic needs have been satisfied (when is enough enough...

...The rationale of the Market is competition—for survival and gain...

...This makes vague good sense to most Americans, for whom the market has pleasant associations...

...Translated into social relations, this conflict of interests expresses itself as interest-groupconfrontations and social-class struggles...

...an individualistic society's reluctance to resort to collective solutions (national health care) before first going through the agony of postponing the inevitable, and other looming problems sensed but seemingly too elusively complex to articulate...

...360 • DISSENT...

...The Market shapes the economy—and society as a whole—by virtue of its impact upon production rather than, as widely supposed, upon distribution...

...It follows that the Market process is but the buy/sell linkage of the economy's three functional markets: the capital market, the labor market, and the goods/services market...

...If this fails, as is likely, government will have to turn to long-range planning of alternate transportation, replacing private automobile trips with public conveyances...

...Within capitalist economies, the purpose of governmental intervention in the Market is twofold: (1) to facilitate the functioning of the Market by protecting it from its shortcomings, including tendencies toward self-destructiveness...

...The extent to which government should influence the economy is an issue that has been fought over for a very long time...

...Left to its own devices, the Market's current trends are likely to expand and exacerbate problems...

...The weak are eliminated and the strong survive, resulting in the trend toward concentration and monopolies...

...Government can also act deliberately to influence indirectly how the Market functions indirectly...

...Are any countervailing forces in view...

...The striking similarity of Japanese and Swedish economic strategies, though for different social ends, is largely overlooked because the former is dominated by corporations and the latter by organized labor acting through the Social Democratic party...

...The latter is being badly misread...

...Man's economy is, as a rule, submerged in his social relations...

...But, above all, the Market, despite Keynesianism, operates in cycles of boom and bust, victimizing businesses, large and small, farmers, professionals, and wage workers...

...2. The intrinsic negative side effects of the market and the questionable effectiveness of political intervention in overcoming them...

...The twenty-first is not likely to be an American Century...

...that it produces a cornucopia of goods but also mountains of waste...

...that it provides conveniences, comforts, and luxuries for an increasing number but shows no ability to close the widening gap between haves and have nots, neither within nor between nations...

...State-owned industries in countries such as Austria, Italy, and France, where they form a high proportion of the economy, are largely indistinguishable from the private sector in operating by the rules of the Market to produce in response to consumer demand...

...To the extent that references to the Market are euphemistic in order to advocate capitalism under another name, there is an implied admission that the Market cannot be separated from capitalism, that is, private property in the means of production, labor as a commodity, unearned income, accumulation, and so forth...

...And with the new economy, a new society sprang into being...

...Brazil, a country with the eighth largest Market-based economy in the world, leads all others in polarization between rich and poor...

...South Korea and Taiwan, judged by their per capita incomes, have not yet made it...

...But insofar as there now exists an effort to utilize the Market's virtues, while straining out its vices, in order to serve the common welfare, an assessment of its feasibility cannot be made until we have clearer insights into how it would resolve a number of contradictions that seem to make this objective unworkable...

...In a Market-based economy, capital and labor are treated, for the first time in the history of economic institutions, as commodities—and bought and sold accordingly...

...Government seeks to overcome these destructive results by regulating the manufacture of automobiles and gasoline...

...In an essay written shortly after World War II, Polanyi observes that the birth of laissez faire administered a shock to civilized man's view of himself, from the effects of which he never quite recovered...

...And growth solutions now generate new problems: the degradation of the natural environment on earth and in space...

...As Japan has shown (and also Europe to a lesser extent), this warfare requires maximum mobilization of economic resources: capital, management, knowledge-industry, and labor...

...The latter, together with welfare state transfer payments, proliferated and grew enormously, in part because they reflected the universal transition within affluent societies from satisfying needs to meeting wants...

...is recognized in all American boardrooms, though a much smaller nation, Sweden, has also used the corporate strategy brilliantly...

...One is the sharpening competition in the world market...

...Government construction of infrastructure often played a key role...

...That this historical progress has been facilitated by the market's competitive and entrepreneurial incentives cannot be contested...

...in short, strategic planning...

...This continuing transformation of market-based economies, which has come to be known as the Keynesian Revolution, is likely to be viewed by historians as of greater significance than the Soviet Revolution...

...A final aspect of the Market's historical context is the largely forgotten role played by the state in getting market-based economies off the ground in various parts of the world...

...This new consciousness of the market reflects, of course, the events triggered by Gorbachev's announcement that the Soviet system, having sinned against the market and God (in that order of importance), requires restructuring on the basis of the market—with a tip of the hat to God...

...Advertising seduces consumers to develop endless wants...

...The central effect is to subvert human solidarity and civic responsibility...

...The American people with its Market-instilled value system is decidedly averse to this (except in time of war, when by political decision a goal-oriented government controlled wages, employment, prices, profits, manufacturing, and construction...

...Japan, Prussia, and Czarist Russia are outstanding examples of the state's role in "jump starting" both capitalist production and market relations through generous credit, subsidies, enactment of special rights, licenses, and so on...

...Nature of the Market Let me first set down a few concepts on the nature of the market...

...For most Soviets, the market is still too distant to be a realistic prospect...

...Left to its own devices, the Market is inherently self-destructive...

...The Market is, essentially, an economic decision-making process that determines the allocation of society's resources by deciding what and how much is produced and how and to whom it is distributed...

...It might be argued with considerable evidence that the rapidity with which the Industrial Revolution developed and spread was due to the Market and the capitalist mode...

...that its pharmaceutical research lengthens lifespans, but its chemicals (pesticides and herbicides) shorten them...

...The nature of the problems that now loom, however, makes them less subject to solution through economic growth...

...But of a higher order of significance is the question as to whether the Market-driven development of the Industrial Revolution could have occurred without the capitalist mode of production...

...True, a coded message on a computer or fax machine can transfer billions of dollars overseas at the end of the business day and retrieve it first thing in the morning—with earnings added...

...Are any of its negative side effects going to be eliminated, except insofar as governmentally applied correctives can curb them without altering the overall thrust of the Market...

...Adding these to the cost of traditional categories of public goods and services (such as national defense, public schools, parks, libraries, streets and roads) resulted in ballooning governmental budgets and the diversion through taxation of increasing proportions of the GNPs of industrial nations to their public sectors...

...Most West Europeans accept the market with sophisticated reservations: alert to possible failings but overwhelmed by evidence of success and increasingly drawn to American-style consumerism...

...Just because eighteenth-century England used the Market process to turn itself into a "nation of shopkeepers" and nineteenth century England used it to lead the way in the Industrial Revolution to become the "world's workshop," is no assurance that, at any other time in history, people of any other culture and level of development can similarly use the Market to the same end—notwithstanding the examples of Western Europe, the United States, Canada, and Japan...

...Those who cannot afford to get in—or who drop out—fall through the cracks...

...Its social impact causes society to "fly blind," as when millions of individually bought automobiles collectively spell traffic gridlock and death-dealing air pollution...

...Neither can the beliefs that the market's function as a pricing mechanism has historically contributed to economic stability conducive to growth, even if plagued by a persistent tendency toward inflation in recent years, nor that the market's negative, even self-destructive, side effects have been largely diminished by state intervention through regulation, credit-budget-tax policies, price supports, and social welfare programs...

...They include the Pentagon, businesses from General Motors to a MomandPop store, individuals and households, buying stocks, bread, oil, transportation, bombs, dynamos, ranches, bonds, Bibles, pornography, steel mills, clothing, you name it...

...that its growth becomes destructive of communitarian values and institutions and of the natural environment...

...Even for those countries in which the Market successfully accumulates the "wealth of nations," there results a lopsided inequality of distribution within the population, resulting in recurring economic instability and social confrontation...

...The Market, therefore, originated with the Industrial Revolution and the capitalist mode of production...

...But the nation also has collective needs, and the polity should determine the allocation of resources to supply them...

...These problems join a long list of old problems that go unsolved to become a leaden weight on progress...

...And although government appears to be loosening its grip on the economy within most (ex)communist nations, it continues to tighten its grip in the capitalist world, for instance, in the planned emergence in 1992 of a new and more advanced stage of the European common market, with a common currency and central European bank...

...358 • DISSENT To Market, To Market The Market's Thrust vs...

...The Market's Side Effects and Political Remedies The following descriptions of the Market's side effects are valid, on the whole, though in some cases not entirely separable from other causes...

...The Market economy still overheats and runs out of fuel, but government now acts to cool it and then to fuel it (and even attempts to "fine tune" it...

...This is likely to be the question of the twenty-first century...

...In summarizing the Market's negative side effects we have noted that it flies blindly...

...And, with respect to the future, does the evidence prove that the market is a mechanism for social change that can go beyond capitalist property relations to accommodate the progressive transformation identified as democratic socialism...

...But, despite this, Market economies still move blindly, though increasingly within broad channels marked out by government...

...the emergence of social limits to growth, caused by the level at which acquisition of goods, services, and facilities by enough people spoils the advantages of possessing them...

...And waging war with economic weapons has not reduced competitiveness and aggressiveness...

...The Industrial Revolution was the SUMMER • 1990 • 355 To Market, To Market product of the growth of scientific knowledge and technological invention, in the first place, and only secondarily a product of socioeconomic phenomena...

...The word "degree" is used by Lindblom deliberately, for neither the Market nor government replaces the other completely...

...This worldwide consensus would not exist if it did not reflect a body of evidence that links the market with economic growth, increased productivity, and improved living standards...

...that its "work ethic" becomes exploitation, even of children (child labor is again on the rise in the United States according to the Department of Labor...

...state ownership of the economy...

...Let me glance at three major areas of inquiry: 1. The identification of the market's distinctive historical role, examined apart from such related phenomena as (a) the Industrial Revolution and subsequent technological progress, (b) the rise of capitalist production methods, and (c) the economic role of the state as "jumpstarter" and crutch...

...Though the Market's negative side effects can be countered through government intervention and largely have been, such countering tends to be ameliorative rather than curative, and often raises new problems requiring additional intervention, thus reinforcing the overall tendency for the state to backstop the Market...

...Will it prove a viable arrangement in the long term for government to treat the Market as if it were an elemental force of nature...

...The current widespread tilt toward privatization does not, therefore, diminish the trend toward an increased role of the state in economic affairs...

...The change from this to a society which was, on the contrary, submerged in the economic system was an entirely novel development...

...Rather than letting the market decide, it operates through strategic planning and a national industrial (investment) policy...

...The goal: market share...

...We owe our understanding of the historical uniqueness of the Market largely to the work of Karl Polanyi, especially his The Great Transformation...

...To what extent was it a contingent relationship...

...Those who participate in this process are buyers and sellers who "meet" in the "marketplace," though they are not only individuals, since buyers and sellers also include businesses of all sizes, farmers and professionals as groups, governments at all levels...

...2) to supplement the Market by providing those goods and services that the Market has no incentive to supply because they do not entail a profit (public schools, social welfare, low-cost housing, infrastructure, and so on...

...Its "transfer" programs of public goods and services exist outside the Market for those who cannot make it within...

...Democratic socialists—above all, European social democrats—increasingly accept the market as the only realistic basis for economic growth, increased wages, and social reform...

...There is now a virtual consensus that the market is the natural state of economic affairs, and its creation in nations not yet blessed with it is the prescription for every economic ailment...

...Not surprisingly, for the market has long since come to determine their tastes and values, their very lives...

...Insofar as this question also encompasses the issue of "market socialism" —that is, market relations without capitalist relations—its significance includes all of Europe and, ultimately, the industrial world...

...if lucky, into a social safety net...

...Charles E. Lindblom begins his definitive Politics and Markets by observing that "the greatest distinction between one government and another is in the degree to which market replaces government or government replaces market...

...In the United States during the last decade the gap between the bottom and the top of the income quintiles has widened...

...But national interests are as sharply defined as ever...

...These questions lead to asking which areas of evidence were not probed, and should have been, in establishing the consensus view of the SUMMER • 1990 • 353 To Market, To Market market...

...The multitudinous buy/sell decisions that drive the market process are made in total ignorance of their collective impact, as expressed in Adam Smith's now hoary "unseen hand...

...Is there reason to believe that the Market's failure to cope with these problems will (or can) be remedied in the future...

...Integral to capitalist society, it permeates its every aspect...

...There is also the evidence of Soviet industrialization, which was neither a product of the Market nor of the capitalist mode...

...Let the Market process determine the number, style, size, and color of shoes...

...The United States, on the other hand, permitted Market forces to drive up interest rates, bringing an inflow of foreign capital and an outflow of dividends and interest...

...The Market process demands that those who wish to participate pay admission...

...the exhaustion of natural resources...

...The proportions of market vs...

...This question is relevant to the future of Eastern Europe and the Soviet Union and is at the heart of the controversy now being joined there, as the Market is featured with its ties to the capitalist mode obfuscated...

...The insecurity of various categories of entrepreneurs (such as farmers, oil drillers, ship owners, owners of small businesses, bank depositors), caused by the instability and unpredictability of the market process, led these entrepreneurs to use their political power to seek public assistance through subsidies, loans, insurance, "bailouts," and so forth, eventually becoming entitlements...

...And similarly for other basic needs and reasonable wants...

...This diversion also triggered the resurgence of laissez-faire ideology and right-wing politics...

...But it cannot be reasonably argued that the Industrial Revolution would not have taken place in the absence of the Market and capitalism...

...If coping with the major problems facing humankind in both its social and natural environments requires societal guidance, it necessitates setting goals and choosing strategies to achieve them...

...This is only one example of the choices between decisions by the Market and by the political process (made with or without planning...

...Americans are more likely to be content with nursery reveries of To market, to market, to buy a fat pig, Home again, home again, to dance a fast jig...

...Is there anything in the nature and function of the Market that is likely to redirect its performance to be able to solve these problems...

...This had the effect of cutting into the availability of accumulated capital for investment in direct wealth-producing enterprise...

...The power of Japan, Inc...

...Laissez-faire America illustrates why not...

...that it makes feverish use of humankind's growing power over nature, born of scientific and technological progress, but puts profits above ecology and market share above the need to conserve natural resources...

...After a decade of such huffing and puffing, the role of government vis-a-vis the economy, both in Great Britain and in the United States, remains essentially unchanged, some privatizations notwithstanding...

...Its basis was the transformation of land and labor into commodities, to be bought and sold in the marketplace, whereas all previous societies had restricted markets to commodities in the proper sense of the term, with land and labor subject to public regulation or self-regulation (as with the guilds...

...The people seem to want the benefits of the Market, but look to government to minimize the dreadful side effects that come with it...

...The competitors are dividing into several major blocs: North America (the United States plus Canada and Mexico), Japan (plus the Asian rim countries) and a united Europe...

...The rising tide that once raised all boats now leaves many stuck on muddy bottoms...

...Internationally, the Market has resulted in hierarchical ranking of nations by wealth, grouping a fortunate few as the rich nations and the rest as relatively or absolutely poor...

...That is why "the market process" as used by its theorists/apologists in the Adam Smith–Van Mises–Hayek tradition is, perhaps, more accurate than the term "the market," which tends to suggest an actual place...

...Sweden, an example of the former, tapped its Supplementary Pension Program to create the so-called fourth fund for targeted industrial investment, creating and sustaining employment that yielded a flow of payroll deductions back into the fund...

...Market-based growth has not demonstrated an ability to reduce the glaring inequality in living standards and in educational/cultural levels within and between nations...

...As the burden increased beyond private charities' resources, government was forced to assume it and the twentieth century's "welfare state" emerged...

...If global market share is the goal, the nation's consumers had better not be permitted to decide on the allocation of resources...

...Businesses live by the "bottom line," with an incentive toward price gouging, adulteration, misrepresentation, environmental degradation...

...Government response differed sharply, depending upon whether it followed a national economic policy or relied upon the Market...

...During the course of the twentieth century, laissez-faire gave way to large-scale political intervention, resulting in state-guided and, increasingly, state-managed capitalism, with the state's control of money flow through central banks (Federal Reserve in the United States), credit control, tariffs and quotas, subsidies, tax policy, industrial and agricultural loans, price supports, wages policy, loan guarantees, savings incentives, marketing assistance, stockpiling, and various regulatory controls...

...The Market as a decision-making process acts somewhat like the neurotransmitters of the brain, sending messages that trigger decisions, 354 • DISSENT To Market, To Market serving as a link among the economy's leading actors: capital, labor, and consumers...

...The Market shapes societal development by determining where and how capital is utilized (that is, invested), and, consequently, employment by volume and type, land use, and population distribution, and a myriad of other economic, social, cultural, ecological, and political trends...

...The Market exists subject to the power of government: the right to buy/sell and produce/ develop prevails within the constraints of laws enacted to serve policy objectives...

...More likely we will be third, after a united Europe and an Asian-rim dominant Japan operating with strategic planning...

...It pits each against all in social Darwinian "survival of the fittest": worker against worker and entrepreneur against entrepreneur, capital against labor and producer against consumer...

...There are also the growth of private affluence and public squalor...

...Market-process relations between the industrially developed nations and the rest take the form of the developed responding to the consumer-driven demands of the underdeveloped for investments, loans, goods, and services, thereby aggravating their dependency, and frustrating their ability to accumulate enough capital to significantly improve their productivity (Argentina, Brazil, Mexico, Egypt, India, to name some...

...And as decision making in economic affairs continues to shift from the Market to the political process, an ever fiercer political resistance is mounted by the interest groups and classes whose power is far greater and more direct in the Market than in the political arena—for instance, the resurgence of the new right in waging ideological and political warfare on behalf of laissez-faire policies...

...What we can conclude is that the prevailing view that attributes the material progress of human societies during the last century or two solely to the Market is fallacious, because the Market's contribution cannot be sufficiently separated from that of the Industrial Revolution, the capitalist mode of production, or the nourishing role of the state...

...Those who determine a government's economic role are citizens, governing officials, and administrators (including, sometimes, planners, though every governmental impact upon the economy should not be called "planning" and, in the United States, it almost never is that...

...political decision making in economic affairs does not necessarily reflect the proportions of private vs...

...This will be a political decision to allocate resources from the private sector's automobile solution to the public sector's rail and bus solution...

...This was capitalism as Karl Marx knew it, and unworkable as he had predicted...

...Now that politics has come to dominate the economy, it also dominates the Market...

...In the past, especially since World War II, the Market's contribution to easing the great problems of civilization has been in the form of economic growth...

...Both Adam Smith and Karl Marx knew this...

...Another variant of madness, though largely rhetorical, is the Thatcherite and Reaganite pronouncements about getting government out of the economy and "letting the market decide...

...The market as we know it today is the historically specific product of industrial capitalism and can only be understood if perceived as such...

...Meanwhile, infatuation with the market seems most pronounced in Eastern Europe, where the people get just enough of a glimpse to be smitten by its allure but remain maddeningly unable to embrace it...

...Even the totally mad Stalinist effort to eliminate the Market in Soviet-type societies fell short of complete success, for these societies had to tolerate market operations in corners of the economy, either by compromise, as in permitted sales from garden plots of collective farmers and kolkhoz "surplus" production, or through black market sales of scarce commodities, tolerated because they were considered helpful to the economy...

...But one person's "dreadful side effects" are another person's sweet accumulation of capital...

...Only very gradually are we realizing what happened to us as recently as a century ago...

...The consumers opt for second homes, third cars, snowmobiles, Jacuzzis, and Torneau watches, thereby shortchanging education at all levels, skill retraining of the labor force, housing, and health care—all essential ingredients in mobilizing resources to fight for market share...

...On the other hand, despite a relatively small nationalized sector, the state in Sweden is omnipresent in managing economic affairs...

...Aristotle was right: man is not an economic, but a social being...

...Because this cannot be determined by the blind outcomes of the Market, the latter must be subordinated to strategically planned priorities designed to serve an overriding common purpose...

...The corporate state strategy has antimarket overtones...

...Japan has shown that the way to bring these together is by making them all part of the corporate state...

...As an alternative to the Market, society's resources can also be directly allocated by political decisions of government (that is, by "command...

...The Market's Historical Context The Market took shape when the Industrial Revolution transformed mercantile capitalism, which existed marginally in late feudal society, into industrial capitalism...

...that it reduces the cost of production but also triggers inflation...

...The nineteenth-century laissez-faire market process, almost total economic determination by consumer demand, eventually proved un356 • DISSENT To Market, To Market workable...