This week I want to have a bit of a rant – about the poor quality of the debate around markets, regulation and growth. Whenever anyone questions the way things are, from the Occupy protestors through to people like me arguing that economic growth will end in tears and crisis, the response is very often, but “markets are wonderful and efficient way of organising our society”. I say what? That’s like saying to someone who says “I don’t like oranges” that “you’re wrong, you haven’t tasted this great cheese”. It’s an irrelevant and illogical response.
The term “markets” does not mean “infinite growth based capitalism that is destroying the ecosystem and preferentially serving the interests of the rich”! Markets don’t have to do that, and don’t always do that, not even today. Indeed, markets as an idea have proven themselves as a resilient mechanism for many objectives. From the food markets of ancient Rome to the emerging boom in renewable energy, markets touch something very powerful in the human psyche and can deliver great good for society.
They allow freedom for people to back themselves and their ideas, they allow people a greater degree of control over their lives and they can help sort the good from the bad. That’s why China has adopted “socialism with Chinese characteristics” i.e. capitalism without democracy. That’s why pretty much every country where people are given freedom to choose, elects for some kind of market-based system.
However, markets when out of control due to poor or lack of regulation or corrupted by selfish and/or irresponsible behaviour, result in terrible outcomes and great damage to society, as I argued in this column celebrating the debate sparked by the Occupy protests.
So like people, markets can be good or bad. Like people they need rules and like people they respond well to structured freedom i.e. operating within limits. If you come across someone who’s what I call a “free market fundamentalist”, that really believes markets should be set free and that government intervention is invariably bad, try them on contract law. After all, isn’t that just “regulation of trust”? If you believe in free markets, then lets get rid of contract law – after all the market will soon sort out those who can and can’t be trusted won’t they? Of course we couldn’t and shouldn’t do that, because we know we need limits or structured freedom.
One of the most important limits we now need to face up to is the planet’s. That means economic growth is finished at some point, as I argued in the series just completed on these pages. We can debate the timing, but I’m yet to hear a convincing argument against the concept.
Is the end of growth the end of markets? The end of capitalism? Most definitely not. We will still need competition, we will still want ideas and innovation to flourish and we will want capital allocated as efficiently as possible. Markets are good at all those things.
So like contract law, we will one day accept the earths limits as absolute boundaries of the market system. And markets will then compete within those limits, accepting that it is obviously necessary for an effective market that it doesn’t destroy the foundation of its existence, the planet’s soil, water, climate and food supply. Today we look back at slavery and think how primitive and ignorant was that behaviour. In future we look back at today and say “they thought they could operate without regard to resource limits – how primitive and ignorant was that behaviour! And they’ll be right.