An arguement for the managed market-economy - Ordoliberalism.

There is a mute point about the market system that cannot be reconciled with examples of economic growth, that of pure economic efficiency.

If the economic problem is:

How to best allocate the Earth’s finite resources to best satisfy the infinite desires and wants of consumers - society at large?

…Why is there such inequality in the world?

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Why Capitalism works?

The primary goal of Capitalism (the Market System) is economic growth, through the interest gained on its economic decisions. For example does the country use its resources (Land, Labour, Capital, and Enterprise) to build missiles or hospitals?

Missiles can be sold on the world markets for a significant profit, allowing the country to build many hospitals. So should a country decide to build one hospital (instead of exploiting its skill in building high-value weapons), one could measure easily the opportunity cost of not building missiles. How would this be economically efficient for the country to build the hospital?

The country would be far better served if it concentrated on its skills, and profited from this intelligent resources management, and trading on the international market to satisfy other needs. It is the queering of this process at national level that drives the Capitalists to argue for a global Free-Market.

“Economics is the study of how society decides what, how and for whom to produce” (Ian Begg London School of Economics and Political Science, UK)

This makes perfect sense – or does it?

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So what’s wrong?

Where this argument falls down is if we consider human progress as a collective endeavour to offer the greatest standard of living to everyone – or how best to allocate Earth’s finite resources to the betterment of the global community. If we choose to examine economics in this way the Free-Market Capitalist system begins to unravel.

Example: How can the advertising industry, which consumes billions of dollars per annum possibly, be an efficient allocation of resources? Now Capitalism argues that in order for the consumer to make an informed decision (i.e. an efficient one) he/she must have access to the relevant product knowledge. But advertising conversely seeks to misinform, to convince the consumer – often through product placement and celebrity endorsement – that he/she ‘needs’ the product. Why does a person with limited income, who works in a restaurant ‘need’ $100 running shoes? In truth they don’t – Nike sells around 200,000,000 pairs of sneakers in a good year.

So if the consumer is misinformed – or brainwashed by semiotic sophistication – how can he/she make an informed decision? Even more baffling is the high-value children/teen markets where the immaturity of the consumer automatically puts the legitimacy of their economic choice in question.

Such is the maturity of the market system – especially in Western countries – there is very little scope for economic decisions to be justifiably efficient.

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Waste and why?

The whole Western model of Conspicuous consumption (Thorstein Veblen, 1889) is a wasteful exercise in over-consumption. Where is the macro-economic efficiency in individuals collecting vast wealth while others starve in poverty? Why should half-eaten burgers be thrown away in the West, while Africans travels tens of miles for a cup of grain?

How is the western model efficiently allocating the worlds resources?

The historical foundation of the current model is in Europe’s laissez-faire past. The feudal European states eventually embraced democracy, while maintaining the concept of state sovereignty. Sovereign decisions were made to suit the internal populations of these nations through elections, and the reality of resource scarcity meant that nations would have trade to maximise prosperity. They would also fiercely defend their own prosperity, often to the detriment of others.

The pre-1914 global economy was the blueprint for the global free-market being constructed by the World Trade Organisation (WTO), The World Bank, and the International Monetary Fund (IMF). The competition for scarce resources – manifested in the growing military prowess of nations – led ultimately to The Great War, and the collapse of the first free-trade experiment. The contemporary experiment seeks to cement stability through a global web of economic co-dependence underpinned by the international capital markets (an example would the financial relationship between the superpowers of the US and China).

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Guilt & Remedy

The Capitalist model seeks to use the concept of charity and aid to remedy the ethical concerns of its populations, global media now highlights the massive inequalities the capitalist systems produces. The demand for interest on investments (Return on Capital Employed: ROCE) pushes those in developing countries into low-paid factories, where hours and standards would be unacceptable to westerners. Also powerful corporate lobby groups look to close markets to oversees imports, denying developing markets access to western prosperity.

However a modern and entirely natural market solution is becoming the phenomena of the C21st macroeconomy. The emergence of consumer-driven ethical capitalism is starting to address many of the inequalities around the world. While developing economies still make decision based on cost, many western consumers are buying produce that meets their ethical requirements. The international coffee market (historically a pure commodity) is being revolutionised by the Fair-Trade initiative. The global media has an important role as watchdog in ensuring that consumers are informed and not misled.

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Conclusion

The only conceivable conditions where the current global economic model could collapse are cataclysms, where significant deterioration of human prosperity occurs: -

1 - Rapid unplanned exhaustion of primary resource – chiefly oil

2 - Intercontinental conflict – probably over access to resources

3 - Acute global recession brought on by collapse of financial markets (either terrorists attack or complete government insolvency)

All of which are not beyond comprehension in the current political climate.

If the Capitalist system is to continue unremittingly we must ensure it is driven not by trans-national corporations, but by democracy. The market must serve the people, and only through the management of the national economy by democratically elected governments can the will of the people be instigated. This means some regulation and control.

The self-correcting market - led by consumer demand - will change to ensure that the demands of the neo-Middle Classes (fair trade, environmental & ethical corporate responsibility) are heeded. However this is dependent on a non-corporate media, freedom of speech, and open lines of communication.

OPEC should ensure responsible reporting of oil reserves so national government can avoid any shocks to supply, and ensure alternative energy supplies.

International institutions such as the United Nations should be reformed and strengthened, to ensure they represent more than the closeted self-serving UN Security Council. This should ensure sovereign states adhere to international laws, fostering long-term stability.

The recent trend of trans-national corporations holding nations to ransom must be resisted through organisations such as the EU (example: Microsoft vs. European Union) that demand competition, financial accountability, and good corporate governance. However equally the EU is guilty of corrupting the market though tariffs, import quotas, and subsidies – these must also be stopped. The United States must also follow its own advice and cease protectionism.

It is this ongoing review and refinement of the global Market System that will ensure that it survives into the future, providing stability and human progress.