Ian McAuley. Is capitalism redeemable? Part 1: From markets to market societies

Nov 12, 2014

Republican victories in the US midterm elections have given conservatives a psychological boost, just days before the twenty-fifth anniversary of the fall of the Berlin Wall. (For the record, the 1989 collapse of European communism was a victory for those Germans, Hungarians and others who risked all to stand up against tyranny, but it has been appropriated by American conservatives as a triumph of unfettered markets over government.)

Those celebrating the midterm results may be overlooking other recent developments, such as the resounding defeat of the Swedish centre-right coalition which had tried to privatize health and education. Even the midterms were less than a decisive endorsement of the Republicans’ free market agenda: several states voted to lift minimum wages, and by a quirk in the US electoral system there was a concentration of central and southern states going to the polls. These are the poorer states where the agenda is far more complex than traditional “left/right” conflicts.

Perhaps people have forgotten the Global Financial Crisis, or as it has come to be known, the Great Recession, when cowboy behaviour in financial markets would have crippled the world economy had governments not bailed them out.

And in celebrating the fall of the Berlin Wall it is easy to overlook communism’s contribution to capitalism. In its role as a rival ideological suitor it kept capitalism on its best behaviour. As the Marxist historian Eric Hobsbawm wrote in his reflection on the twentieth century:

It is one of the ironies of this strange century that the most lasting results of the October revolution, whose object was the global overthrow of capitalism, was to save its antagonist, both in war and peace – that is to say, by providing it with the incentive, fear, to reform itself after the Second World War, and, by establishing the popularity of economic planning, furnishing it with some of the procedures for its reform.

With their supposed rival discredited, capitalism’s champions have been pushing boundaries aside. In some countries – the English-speaking countries in particular – it is becoming beyond question that the best government is small government, and that markets should be left to their own devices.

The Bank of England Governor Mark Carney at a conference on “inclusive capitalism” earlier this year warned about such thoughtless exuberance:

All ideologies are prone to extremes. Capitalism loses its sense of moderation when the belief in the power of the market enters the realm of faith.

Seventy years ago, when economists and politicians were considering the postwar order, the Hungarian economist and philosopher Karl Polanyi warned about a coming “great transformation”, when the market would be unleashed from its previous constraints.

Since markets had first emerged, Polanyi pointed out, they had been subject to society’s norms and moral codes, and generally limited in space (the market place) and time (market days and fairs). They had been constrained by notions of a “fair price” and rules against usury. He foresaw the postwar order, however, as one in which people would live in a “market society”, and the organising principles of society would be the those of the market.

As it happened, the immediate postwar order saw a tamed version of capitalism. The Great Depression was fresh in people’s memories, and communism still had followers. (Menzies won the 1961 election on Communist Party preferences directed away from Labor.)

But from the early 1980s, with the election of Thatcher and Reagan in in the USA, capitalism became more triumphant and more aggressive, and by now Polanyi’s prophecy has largely come to pass. We have let the market take over more of our physical and metaphorical space. With commercial television and the internet even our homes are subsumed into market space. Our roads are turned over to private companies to operate as tollways, and to make sure we can’t escape the market, public space is becoming cluttered with billboards. And, most seriously, we are increasingly allowing the profit motive to intrude into health and education – areas we once considered to be subject to the rules of social obligation.

The Harvard philosopher Michael Sandel in his book What Money Can’t Buy: The Moral Limits of Markets points out some of the extensions of the idea that everything is on the market: some Californian prisoners can buy a cell upgrade; $500 000 will buy you a visa to migrate to the United States; you can sell space on your exposed skin for tattoos carrying advertising; a lobbyist can hire you to stand in a queue to meet a congressman. He goes on with a list that makes prostitution look positively respectable by comparison.

Possibly because this transformation has been gradual, we have tended to underestimate its extent. And possibly because some of the earlier restrictions on markets were dysfunctional (such as the closure of all shops, even garages, for 45 hours from noon on Saturday), we have assumed that the alternative to poor regulation is no regulation.

We have let the profit-driven private health insurance industry into health financing, using clumsy, expensive and ineffective mechanisms, such as “community rating” to try to restore some equity. We have let for-profit corporations enter what we now call the “market” for education. We talk about the “labour market”, as if people are tradeable commodities like iron ore or soy beans.

The pushback, where it has occurred, has been insipid. Politicians, even those supposedly on the “left”, talk about policies “balancing” economic and social objectives, and businesspeople talk about “triple bottom line” reporting, as if there is some tradeoff between economic and social outcomes.

But, Polanyi would ask, what is the point of economic activity if it does not contribute to social outcomes? We laugh at the apocryphal story of the officer who said during the Vietnam War “we had to destroy the village in order to save it”, but we let pass the equally silly idea that we must somehow compromise social objectives to achieve economic objectives.

The market must be restored to its place, not above or beside society, but contained within society, subject to its norms.  The mixed economy, where markets, civil society and governments all do what they do best, has served us well in the past, but the fashionable “small government” ideology is leading us down a destructive path.

Markets are capable of bringing great prosperity, but when left to their own devices can be destructive. Like an obese patient eating himself to death, capitalism needs to be protected from its own excesses.

In following articles I will touch on capitalism’s self-destructive forces, and on what we must do, through the governments we elect, to protect it from those forces, because there is a danger that in response to its failures we will reject it altogether. The alternatives to properly-regulated capitalism are rather unattractive.


Share and Enjoy !

Subscribe to John Menadue's Newsletter
Subscribe to John Menadue's Newsletter


Thank you for subscribing!