We are continuously told that government just gets in the way. We should let people decide for themselves how to use their talents and resources and then everything will be hunky dory. None of this nanny state stuff that mollycoddles the idle and talentless! None of this red tape that ties entrepreneurs who want to take risks and produce wealth for themselves and others into knot! Let us free enterprise!
All this is based on a theory which never made any sense. And if you have bad theory, you will get bad practice.
The theory on which this anti-government, anti-interventionist babble is based can be traced back to a giant among political economists. In 1776, Adam Smith wrote the Wealth of Nations. Central to his argument was that, if we lived in an economy where everyone had an equal opportunity to compete with all others, where no one could regulate the amount of goods and services to be produced, where no one person or group of persons could set a price for goods, services or resources, we could leave the production of wealth to individuals. If all of us used our talents and resources as we chose and all of us decided for ourselves what we wanted to own and consume, then each of us would be motivated to use our particular talents and resources to produce wanted goods and services as cheaply as we could while still making a profit. If we made too much, others would try to do things better and cheaper to win those profits for themselves. In the end, we would be producing what people wanted at the lowest price. It would mean our talents and resources would have been used efficiently. Even more important, all our acts would have been guided by how we were positioned in a competitive unregulated market. It would be the neutral and invisible hand of the market, not the heavy-handed, highly politicized and partisan hands of a bunch of politicians in government, that would have determined our decisions.
We would have exercised our freedom to think and act. And it would have led to economic efficiency. Freedom and efficiency: who could object to that? This is what, capitalists argue, their system is all about: free markets that create political liberty and economic wealth.
There is a problem with all this: there never has been, and there never will be, a free market. Market capitalism rests its claim to legitimacy on a big lie.
It is true, of course, that individuals have different talents and that some have more abilities of a particular type than do others. This should give them a natural advantage in some competitive markets. But, this difference may be eliminated or diminished if we train and educate people to get some of these otherwise scarce talents. Or we can restrict the number of competitors even further by refusing to let people use their built-in talents. We could, and do, demand that apprenticeship programmes be served before people with relevant talent may practice specified trades, or require them to attend universities or other schools before they are allowed to use their talents. We could, and do, limit the number of people who will be admitted to those facilities, stopping some from getting the right qualifications even though they have the right amount of raw talent – as we do for law schools, medical and engineering schools, etc. And, living under capitalism, it turns out that more talented people who are poor are excluded than their wealthier counterparts. Or, alternatively, we can bring in people with some talents from elsewhere, adding to the pool of local talent and thereby increase competition. Similarly, we may decide that children under a certain age should not be allowed to work or that people over a certain age ought not to be part of a competitive pool of workers or we might enlarge the pool by increasing the population by bringing more migrants to our economy. Indeed, this is the principal policy reasoning that goes into designing immigration programmes. That is, we can change the way in which a market will work by ringing changes on who and how many will be allowed to participate in the competition. And we do this all the time.
We construct markets. It is a political exercise. The regulation of markets is a prime responsibility of governments. Markets are never unregulated. The only question is: who has the most influence to get the kind of regulation that suit them and hurts their rivals. In a capitalist economy, rich people have the most influence. They rig the markets but pretend they don’t.
To have resources with which to compete, resources have to be allocated in such a way that real competition exists between those who own property. History and previous allocations of resources play their part. Nearly half of the wealth owned by Canadians is inherited. These allocations can be changed by changing our tax laws, by changing our inheritance laws. That is, we can change how markets will operate simply by changing the allocation of resources. Which way are we likely to change things? We know: the wealthy pay less tax than they should.
To lower the tax burden of those who already own a disproportionate part of our wealth will enhance their position in any market in which they enter. The rich, therefore, work hard to give taxation a dirty name. They argue that it is a prime example of government intervention with the neutral market and that the imposition of taxes by a government, therefore, is a fetter on individual freedom and economic efficiency. It is undesirable regulation, they say, indignantly, self-righteously. But, what they are asking for is to be given an advantage in the market. They call any reduction of taxes praise worthy deregulation. But it really is a positive form of regulation in their favour.
It is the same when they seek a subsidy. Toronto was one of the competing cities that wanted Amazon to establish a large large office in their precincts. To this end, all the competitors offered sweeteners, that is, they offered subsidies so that Amazon would get an advantage in their markets that other investors could not get. Amazon wanted a regulation, one that gave them privileged treatment. That kind of regulation is to be welcomed. We got lucky and lost this bidding war but we were willing to regulate in a manner that was convivial to capitalists who are always telling us to leave the market alone. Capitalists never mean it. They just don’t like regulations that do not suit them.
Lat it be repeated. Markets do not exist neutrally. They are always constructed. The Adam Smith model does not exist and cannot be used to defend market capitalism.
In fact, we can decide whether or not a market should exist at all. We could say that no one may make, sell or buy alcohol, or certain drugs, or tobacco. If we do decide to do this, there will be no way to make profits by making alcohol, growing and processing drugs, growing and processing tobacco, advertising those products. We do not allow people to sell and buy votes. There is to be no market in votes which explains why we get so angry when we think some wealthy people are swaying elections. The more radical might even say there should be no market for anything that people need for their very survival. We could say that if we had power and the political will to use it. Markets only exist if we say they exist.
When big business tells us that they want to be left alone they simply mean that they like the current situation and do not want it disturbed. When they do not like it they want government to interfere. They always favour governments that hinder unionization because this will enable them to make workers compete more with each other while leaving the employers’ resources alone. They always want governments to give them subsidies, that is, change the market, when they invest their capital.
The current dominance of capitalists ensures that we get markets that serve their interests, not those of the majority. The political decisions that have led to this position are hidden from view by the pretence that the invisible hand of the market has brought us to where we are, rather than abuses of economic power that have led to favourable political manipulations of markets. This must be confronted by anti-capitalists. A politics based on falsehoods cannot serve the majority.
There is no logical reason that demands that any existing market should be left alone do. The issue always is: what result do we want? Let us not be taken in by the argument that markets are neutral and should be left alone.
It is never an issue of government regulation bad, markets good.