With the founding of the Social Liberal Forum the debate between Social Liberalism and Classical Liberalism has started up again and prompted me to repost yet another article. You don't have to read it, but if you do I'd be glad of any comments.
Thoughts on going to market
I love maps. Particularly, I like maps of mountains like the Coolins of Skye. They are so much easier to climb than the real thing. Apostles of "the Market" both within and without the Liberal Democrats need to remember that the map is not the territory, the theory is not the reality. In texts from Adam Smith to David Laws there is "the Market"; in the world there are only markets. Let us therefore explore the reality and not only the map and build Liberal policy on what exists as well as what we would like there to be.
In the Platonic world of the Market, everyone has equal information, supply always responds to demand and competition is utterly free. In the world of Emron, Berlusconi and even Gordon Brown, information is shared very unequally, supply is controlled by the few and the demands of the many are often shaped by them too. In the real world of soap powder, beer, buses, railways and newspapers, producers seek to dominate markets and restrict competition. The evangelist of the Market will of course condemn these departures from theory, but we should take the advice of Sherlock Holmes and make our theories explain the facts and not the facts fit our theories.
The Market is as much an intellectual construct as was "the State" in socialist theory. For much of the twentieth century, political discourse was pre-occupied with "the State" (sometimes called the people, the nation etc). When people wanted the government to do something (and especially when people in government wanted to do something), they did not say, "Let's give this minister (commissioner, gauleiter, prefect etc.) more power". No, they talked of the interests of the State (people, nation etc.). This kind of talk shouldn`t work any more. The people (real existing people) don't buy it. However, in the last two decades of the twentieth century and in our own brave new era, there is a new god, "the Market". These words conceal a slide in meaning, which I call the idealistic fallacy. The Market is an idea, a slovenly abbreviation for "the free market" whereas real markets are not an idea and not very free.
Of course, as Liberals we should prefer free-er markets to less free ones, competition to monopoly, choice to compulsion. But we should also abandon the old theology of the Market versus the State, which is about as fantastic and as little use as Alien vs. Predator. Both are false gods. Real markets need real states. Actors in real markets need a framework of law and a guarantee of value. Contract law means you can rely upon bargains made with strangers; property law defines what can be owned and by whom (Can you sell your genes, your ideas or even your cat ? Can anyone else ?). A stable currency requires legitimate authority not just a cabal of gold miners. Modern enterprises involving capital from many pockets need company law and banking law.
Above all, making markets free-er requires competition law. Who can doubt that there is a free-er market today in the countries of the European Union because of legislation, not in spite of it ? Well unfortunately, many people, but they should consider what the markets of Europe would be like if each country had been adopting its own legislation on the subject for the last fifty years. With each government lobbied by its own interest groups, there would still be a protectionist plethora of tariff and non-tariff barriers to trade. Yet there are people who believe that you can have a functioning Free Trade Area without a democratic legislature to agree the rules. If you do doubt that markets need states and you think that freeing markets means less law and a weak state, take a good long look at Russia. The paradox is that law and freedom march together.
All political theories have an ethical root, explicit or implicit. They assume what human beings are like, how they behave and especially how they relate to each other. For Marx, your role as producer defines you; for the marketeers, it is more often your role as consumer. Feudal societies were made of subjects, nation-states of citizens. Liberals must build their ideas on the real complexity and diversity of people. Yes, we are all both producers and consumers but our roles in society are not exhausted by what we buy and sell. Yes, we are citizens but not everything in our lives, not even the most important, is covered by our public roles. As John Stuart Mill proclaimed, there is also the private sphere. Our freedom depends upon not expecting the state to solve all problems. It also depends upon not expecting the Market to solve them.
Ruskin lampooned the theories of economists by comparing them with theories of exercise - calisthenics. He said it was as if you based your theory of exercise on human bodies having no bones. From this premise you could prove logically that people could roll into balls or cylinders. Your logic would be impeccable but your premise absurd. This criticism still applies to modern economists who expect all behaviour in the Market to be based upon the rational expectations of people whose only motive is to maximise their wealth. In real markets people have other desires and motives such as to maximise their free time or the time spent or not spent in one person's company. In real markets people don't always recognise the course of action which will achieve their desires. In real markets their desires and their expectations are partly shaped by suppliers. Above all, in real markets people do not always have the means to convert their desires into effective demand.
It has become fashionable to justify state action today in terms of "market failure". I dislike the term because it implies an assumption that the Market should have produced a rational allocation of scarce resources in the first place, to provide enough teachers or doctors or houses or whatever the writer wants. We should not even hint at such an assumption but understand ab initio that real markets are good for many things but not all things. Perhaps then we should expect real markets not to deliver social justice or human happiness in general but simply to deliver strictly economic objectives (assuming there are such things). Unfortunately real markets cannot always manage that either. As John Maynard Keynes so compellingly argued, markets will inevitably bring about a balance between demand and supply but the balance will not necessarily be at the level where all resources are used or all people employed.
As a young economics student I heard another unfashionable economist, Kenneth Galbraith, propose the motion that "This house considers that the market is a snare and a delusion". I spoke against him. Now I believe that talk of the Market is a snare and a delusion but that real existing markets are powerful tools of mankind to achieve its purposes. They cannot do everything. Liberals must be wary of state action. There is always a price as well as a benefit for interfering with a market. When it comes to the Market and the State, there is not one god and we should eschew the blandishments of those who say there is.