Market arrangements always favour certain outcomes over others, and ensure that social arrangements stay within set parameters.
Laurie Macfarlane is economics editor at openDemocracy, and a research associate at the UCL Institute for Innovation and Public Purpose.
Cross-posted from Open Democracy
“Every single time central planning has been tried… it has resulted in mass misery.”
This is according to the Taxpayer Alliance’s Chloe Westley. It is a familiar story: the collapse of the Soviet Union and other communist regimes provided incontrovertible proof that economic planning doesn’t work. Wherever governments have tried to plan the allocation of resources, the result has been disastrous. In contrast, wherever governments have got out of the way, stopped intervening everywhere and let markets run their natural course, people have flourished.
There are many problems with this narrative. But one that is often overlooked is the extent to which capitalist economies are also planned. Despite their pervasiveness, markets are not spontaneous laws of nature; they are to a large extent creatures of the state. Throughout history, capitalist markets have been created and sustained through mass, often violent, state intervention. As Karl Polanyi put it: “The road to the free market was opened and kept open by an enormous increase in continuous, centrally organized and controlled interventionism.”
Markets are underpinned by property rights, which are defined and enforced by the state. They are further shaped by company law, intellectual property law, employment law, taxation, regulation, the decisions of central banks and so on — and are administered through the use of courts, regulators and various other public bodies. The outcomes we observe in market economies, from the prices of goods and services to the distribution of income and wealth, are a direct product of how this institutional apparatus is constructed. In other words, the invisible hand of the market is directed by an iron fist.
Economists typically view the state and the market as alternative and competing ways of organising economic activity. According to neoclassical economic theory, goods and services are most efficiently produced by private firms operating in a competitive market, and the state should only intervene in markets to ‘level the playing field’ or to correct certain identifiable market failures. Because the state has neither the knowledge nor the expertise to allocate resources better than the market, it should avoid pursuing policies which try to ‘pick winners’ as this will only serve to distort market competition.
But given that markets themselves are government interventions, there can never be ‘level playing field’ in any meaningful sense. The institutional apparatus underpinning markets always favours certain outcomes over others, and ensures that social arrangements stay within set parameters. As J.W. Mason has put it:
“the conscious planning that confines market outcomes within tolerable bounds has to be hidden from view because if the role of planning was acknowledged, it would undermine the idea of markets as natural and spontaneous and demonstrate the possibility of conscious planning toward other ends.”
The presentation of market institutional arrangements as a natural order that shouldn’t be ‘intervened in’ unless strict criteria are met has been a remarkably powerful rhetorical tool. But in reality it is little more than ideology masquerading as science.
Moreover, as Leigh Phillips and Michal Rozworski outline in their new book ‘The People’s Republic of Walmart: How the World’s Biggest Corporations are Laying the Foundation for Socialism’, large swathes of the private sector are not governed by markets at all, but by central planning. Although corporations such as Walmart and Amazon are held up as the ultimate bastions of free-market capitalism, ironically they are the world’s most successful economic planners. Many operate at a scale that is larger than nation states, but their operations are hierarchical, undemocratic, and strictly coordinated. Internal resources are allocated by command and control management, not by market mechanisms. While the overarching goal of these corporate giants is profit rather than public purpose, we should not underestimate the significance of their logistical and technological achievements. The question is how to harness them for democratically determined ends. As Phillips and Rozworski conclude: “Planning works, just not yet for us.”
At a time when governments around the world are facing major social and environmental challenges, simply trying to ‘level the playing field’ will only lock us into our current trajectories. As the UCL Institute for Innovation and Public Purpose has outlined, if we are to overcome the key challenges of the twenty-first century, we need to abandon the myth of the level playing field and instead ‘tilt’ the playing field towards an ambitious set of collective goals: transitioning to an environmentally sustainable economy, eradicating poverty, reducing inequality, improving health and education outcomes, etc.
Markets may well be the best way of organising human affairs in some circumstances. Where this is the case, they should be treated not as self-regulating forces, but as outcomes that can be created, shaped and actively steered towards desired ends. Where markets do not serve any clear public purpose, they should be dismantled. The decisions to abolish the market for slaves and child labour were not made on the basis of some economic law – they were moral decisions. Today we need the same boldness from leaders on everything from fossil fuel companies to the array of socially useless financial instruments.
But markets cannot resolve all the allocative dilemmas faced by modern economies. As Phillips and Rozworski highlight: “What is profitable is not always useful, and what is useful is not always profitable”. Throughout history, many of humanity’s greatest achievements have arisen not from profit-oriented competition, but from collective action – whether it is landing on the moon, achieving universal healthcare, or developing key technologies. But after four decades of neoliberalism, the public sector’s capacity has been drastically hollowed out. Key public functions have been delegated to management consultants and parasitic outsourcing companies, while the application of private sector management techniques to the public sphere has placed civil servants in an administrative straightjacket. If we are to transform our economy on the scale that is required we must urgently rebuild public sector institutions, and increase their capacity to think and act big. In doing so, we should draw lessons from public sector success stories such as NASA, as well as from the logistical feats of corporate planners such as Amazon.
Many will no doubt continue to paint planning as an evil that must be consigned to the dustbin of history. But make no mistake: we already live in a planned economy – we just need to take the steering wheel.