The International Writers Magazine: UK Politics
Markets & Democracy
When a British Conservative politician defected from the Tory party to join the United Kingdom Independence Party recently one journalist referred to him as a ‘free market man’, without further explanation.
The label alone tells us almost nothing about where that politician stands. We can deduce that he favours competition in the economy, but that does not distinguish him from millions of other people. We may infer that he prefers capitalism to socialism, but we knew that from his membership of the Conservative Party and defection to UKIP. The journalist presumably believed that he was telling us something we didn’t already know by using that phrase, but was he?
What does ‘free market’ mean? Use of the term reminded me of protests by economics undergraduates some time ago against the narrowness of their curriculum. It was alleged that many graduated from a British university without ever having heard of Keynes, and certainly ignorant of his approach. They were familiar however with the names of Friedman and Hayek. They left university believing themselves to be economists, and taking jobs as such in the City and elsewhere. Once there, they devoted their time to studying economic models in order to predict the likely outcome of certain actions and policies. Those students who protested were right to do so: the curriculum was too narrow.
Economics is not simply mathematics, nor is it only about markets, free or otherwise. The term ‘free market’ conjures up images of suppliers operating independently of each other, competing fiercely to attract the patronage of informed consumers exercising their free choice. That picture bears little relation to reality today, or at any other time. The ‘free market’ is an academic concept that belongs on the campus, and even there it is partial, as the protesting students argued. Allow it to escape the campus and it is not only an incomplete model, but dangerous.
No nation in history has become prosperous through operating purely laissez-faire policies. Even Margaret Thatcher, no Guardianista lefty, told Hayek that his ideas were unworkable in a parliamentary democracy, and it is interesting to note that the approach proposed by Hayek and Friedman’s Chicago School were introduced into south American countries run by dictatorships.
Adherence to the free market model is dangerous because it fails to take account of important dimensions of a democratic society. Indeed, the term ‘economics’ describes only a part of an equation well understood by Adam Smith and his contemporaries who referred to political-economy, rather than economy in isolation. The distinction is important. What caused Keynes to advise against demanding excessive reparations from a defeated Germany was his recognition that economics and politics are intertwined. He did not need a mathematical model to tell him that there would be political consequences.
The intellectual separation of economics and politics makes no sense, particularly when we further fragment our appreciation and focus on some narrow element in the economic side of the equation. The British government is presently congratulating itself on having developed a successful economy. The focus is on Gross Domestic Product (GDP) which, we are told, is growing faster than in any other country. If the government took account of the parallel growth in food-banks however, they might have a more modest assessment of their achievements.
Despite rhetoric to the contrary, both politicians and business leaders are perfectly aware of the political dimension. Why else would the latter spend so much effort in lobbying, which is a major industry in capitals such as London and Washington? What other explanation is there for the readiness of business corporations to offer non-executive directorships to elected politicians, or to fund political parties? Despite the lip-service that many give to the notion of smaller or less government, they are fully aware of the importance of government to their commercial interests.
What advocates of the free market never acknowledge is the importance of government as a consumer. Though our high streets provide numerous examples of intense competition for the patronage of individual households, that is far from the whole story. Many corporations, including some familiar to the ordinary consumer, grew and continue to grow by winning contracts from governments. This has always been the case. Some of the biggest names in corporate America owe their beginnings to supplying goods to the federal government during the American civil war.
The relationship between corporations and government is not simply one of the former selling to the latter. Election to office gives governments control of enormous assets resting in the public sector. If it is philosophically opposed to state ownership the government becomes the seller and corporations the purchasers, usually at prices below those justified by the market. One does not have to be a dyed in the wool socialist to question the wisdom of some privatisation programmes. In most countries the electorate is not consulted prior to such sell-offs, but the Swiss did hold a referendum on the possible sale of the electricity supply industry. The electorate said ‘no thanks’.
I mentioned earlier that the free market is a threat to democracy. It only worked in countries where the population at large was cowed by a dictator. The market is an amoral force by its nature, always seeking to expand and release itself from control. It is blind to any other imperative. If the main economic force is amoral then morality must spring from elsewhere, from the political dimension. That means that in a democratic society a balance must be achieved by government placing some constraint on corporations while allowing market forces to operate to the general good. It calls for the elected government to be in the driving seat, though driving intelligently and with a light touch. Unfortunately, the reverse may be the reality.
There is reason to believe that the system has been corrupted to the extent that government is now driven by corporations. This certainly seems to be the case in Britain where the relationship between elected politicians and unelected corporate heads is too cosy, as is the relationship between private business and the civil service.
We are still a capitalist society perhaps, but it is far from being free market capitalism. It is now largely politically sponsored or supported capitalism. The rescue of Northern Rock and the Royal Bank of Scotland by the state is only the most prominent evidence supporting this claim. In a system of free market capitalism both organisations would have been allowed to collapse, with other entrepreneurs left to buy the wreckage cheaply. Instead, the state bought the failing businesses, while flogging off state assets below their market value. Consequently, our system would probably be more appropriately known as assured corporatism, an arrangement not too far removed from the state capitalism of China. In China though, the politicians are in charge, whereas in the west it is the corporations calling the shots.
So, the term free market appears to describe a system in which the government’s role is that of a major consumer and provider of assets on the cheap, while leaving the market free of state interference. Nice!
© Tom Kilcourse September 5th 2014
kilcoursetom at yahoo.co.uk
The Middle Ground
The first step on the road to political perdition in Britain was taken when someone discovered the middle ground
The Effects of Social Conditioning
When, on the BBC radio’s Today Programme, broadcaster John Humphrys introduced an item on the Rotherham rapes scandal by asking ‘How can this happen? How can it be?’ I felt the question had the ring of disingenuousness, or simply naivety.