Sunday, May 28, 2006

Free Markets versus Free Markets

It appears that many people are still living in the world of the old debate between "the market economy" and "socialism".

A recent example is John Meadowcroft's book, The Ethics of the Market (Palgrave, 2006, £50.00), which synthesizes the work of a number of liberal and libertarian scholars into "a positive ethical case for the market economy". His argument is the old one that only through the impersonal signals provided by the market’s price mechanism can individuals meet the needs of people with whom they have no direct contact.

As with most people in the contemporary West, who have no education in world history and no awareness of world history, he simply does not know that all societies have always had market economies. The question is: what SORT of market economy?

In the case of India, for some thousands of years, we had a market economy in which a monopoly over business was given to members of a caste (mine, as it happens), so that we were free (within overall economic and political realities) to set the price and run the market as we wished. The result was occasions when we were able to impose interest rates of as much as 360% per year, which drove whole families into servitude for generations. There are still families who are living in what is called "bonded labour" - in spite of the fact that this is now officially illegal in the country.

That is why it is difficult to accept Meadowcroft's entirely theoretical argument that the market provides incentives for good behaviour and mechanisms that supply trust, making it a self-regulating economic system, offering the best prospect for prosperous, peaceful and free societies.

If you think I am unduly biased because I am Indian, consider the experience of Red China, where a free market exists (with some help from Google, Microsoft and so on) in happy co-operation with a Communist ruling elite. Or consider Kazakhstan where a market economy supports a non-communist elite. So flourishing markets always strengthen the status quo, whatever that is.

The reason why Meadowcroft and other liberals and libertarians get it so wrong is because they put the cart before the horse. The sorts of market economy with which they are familiar, and for which they argue so hysterically, did not come into existence because of the magical thing called "the free market".

Rather, the kind of free market with which they are familiar and which they admire so much arose in Reformation countries (as distinct from market economies in other times and places, in which markets simply reinforced entirely unjust social relations).

Why did the sort of "market economies" that Meadowcroft admires arise in Reformation countries and not in other societies? Because Reformation countries forefronted the rule of law (in other words, treated the rulers as well as the ruled as equal before the law), because they had a view of individuals as neither autonomous nor subject to society but related to and responsible for society, because they had a high view of ethics and diversity and work and living within one's means, and so on.

In other words, it is not "free markets" that provided for prosperity, peace and freedom, it was a spiritual revolution (the Reformation) that created the environment within which markets of the right sort could be built over time.

Regretfully, Meadowcroft's book is typical of much liberal/libertarian work, which may have had some merit in the 1950s or even the 1970s but ducks all the really important questions in the global economy today.

These questions are (for example) how one can build an environmentally sustainable global system as distinct from the environmentally unsustainable model we have today, how we are going to have global political stability when its guarantor since the Second World War (the USA) is growing weaker and weaker, and how we can have global financial stability when the IMF, the World Bank and the WTO privilege investors over ordinary taxpayers, workers and the poor.

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