There is no such thing as a free market, a market without regulations. All markets have rules, and the rules are crucial to deciding who profits from the activities of the markets. It’s stupid to pretend otherwise, but lots of apparently not stupid people preach this gospel even today, in the weeping pustulence that is the world economy. Here’s Harvard Professor and George W. Bush adviser Greg Mankiw explaining why the filthy rich bankers who caused the Great Crash should be paid tons of money:
Those who work in banking, venture capital and other financial firms are in charge of allocating the economy’s investment resources. They decide, in a decentralized and competitive way, which companies and industries will shrink and which will grow. It makes sense that a nation would allocate many of its most talented and thus highly compensated individuals to the task.
Lambert Strether at Naked Capitalism deconstructs and corrects this blather here, and I highly recommend it. But let me add that if bankers actually play this role, instead, say, of serving their own interests in ways that would win the approbation of a 19th Century Robber Baron, it’s because the rules of our markets allow it. Those same rules result in the outlandish and untaxed wealth they steal from savers and useful enterprises. Markets have rules, and the rules determine who makes money.
Michel Foucault discussed economic systems in his 1978-9 lectures at the College De France, collected in The Birth of Biopolitics, and translated by Graham Burchell. These lectures are a fascinating application of Foucault’s considerable intellect to economics.* Foucault spoke at a time when the political leadership of France was still shaking from the strikes and riots of May 1968. Foucault’s principal assistant in the preparation of the lectures, François Ewald, explains the context:
We were, in France, still in the aftermath of May ’68, and that was a time of liberation. The big question was how it would be possible to think outside of the old framework of thinking in France. We were searching for how to liberate ourselves from the past.
Well, that’s a massive undertaking. Let’s start with a small part of it. Mankiw’s ritual invocation of markets carries us into the heart of the study of neoliberalism. Foucault describes the origins of the German economic system, ordoliberalism, and contrasts it with American “anarcho-capitalism”. This latter term is not defined, leaving us free to enjoy its descriptive power. Both of these systems have markets at their core.
When people think of markets, I suspect one the central images is street markets. The street markets of European cities are a delight for tourists, and a focus of life for many residents. Squares and street medians are taken over by merchants, and people buy food, clothes and art from makers and arbitragers. I once lived near the Richard Lenoir market near the Bastille Opera House in Paris. I remember a guy who sold carrots from Normandy that were so fresh you didn’t peel them, you just washed the dirt off and ate them. There were at least two groups selling choucroute garnie from huge wok-shaped pans full of sauerkraut, pork chops, several kinds of sausages, ham chunks and all of it fit for a king.
In this setting, I was able to compare prices and more important, because I was there for a while, I was also able to compare quality. In these transactions, I was what Foucault calls a “partner of exchange”. I was able to compare value and price for my own satisfaction.
Now compare that with your cable company. They sell at their price and on their terms and with their customer service and their rules. You either buy the bundles on offer, or you don’t, and they don’t care. The idea that you are participating in the setting of prices is gone completely. There is no control over the monopoly of the cable company. That is a pretty good image for the marketplace envisioned by American neoliberals. In this setting, you are not a partner in exchange, you are nothing but the American neoliberal version of homo economicus: the entrepreneur of the self. You stand alone in the face of massive enterprises and try to make your way to a version of satisfaction by exchanges in the machine-like marketplace of cable companies and their kindred monopolies and oligopolies.
Foucault’s description of German Ordoliberalism stands in stark contrast to this image. As he tells the story, the leadership of post-WWII Germany made a conscious decision to use markets as a the central form of economic governance, but they were not so foolish as to think markets exist without rules. The question is what kinds of rules could they make that would insure the best outcomes for society, without destroying the usefulness of markets. The Germans, Foucault says, saw that the crucial discipline over price-setting in markets is fierce competition. They knew that competition is not a natural phenomenon in capitalism. They saw that the crucial role of government would be to create and nurture competition by setting up the rules so that competition would be the natural outcome. Foucault explains:
But what did this policy of society, this Gesellschaftspolitik have to consist in for it to succeed in constituting a market space in which competitive mechanisms could really function despite their intrinsic fragility? It consisted in a number of objectives which I have talked about, such as, for example, avoiding centralization, encouraging medium sized enterprises, support for what they call non-proletarian enterprises, that is to say, broadly, craft enterprises, small businesses, etcetera, increasing access to property ownership, trying to replace the social insurance of risk with individual insurance, and also regulating all the multiple problems of the environment. P. 240.
We can see the results of this direct governmental effort. Germany has an economic system that works for the benefit of all of its citizens. It even survived the Great Crash efficiently. We can see the results of forcing competition in France, where cable and internet service is massively cheaper than in the US.
In the US, we barely pretend to have competition as a market control, and if there is any, it certainly isn’t the result of government action. Rules that allow the rich to do as they wish in the economic sphere produce the cable/internet/cell phone prices you pay. Allowing banks to dominate the financial sector means that the poorest among us pay vastly more for the skimpy financial services they get. Compare that to the postal banks in Europe.
We get anarcho-capitalism. The Germans and the French get competition. Which has better results for the filthy rich? Which country is controlled by the filthy rich?
*Both of the books I’ve been discussing lately, Philip Mirowski’s Never Let a Serious Crisis Go to Waste, and Bruce Harcourt’s The Illusion of Free Markets, grapple with Foucault’s ideas.
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