Posts tagged Rigged markets

We know other marketplaces.

If you enjoyed Pigs as a Paradigm, here is some more from the same place, which may be something by way of a moral. This is in Aristide’s article Globalization: A View from Below, which is a frustrating mix of sharp and important insights and politically-blinkered non sequiturs. The article includes the story about the international-aid driven massacre of Haitian creole pigs, and also includes this, which I think is another of its best passages.

In today’s global marketplace trillions of dollars are traded each day via a vast network of computers. In this market no one talks, no one touches. Only numbers count. . . .

We know other marketplaces. On a plain high in the mountains of Haiti, one day a week thousands of people still gather. This is the marketplace of my childhood in the mountains above Port Salut. The sights and the smells and the noise and the color overwhelm you. Everyone comes. If you don’t come you will miss everything. The donkeys tied and waiting in the woods number in the thousands. Goods are displayed in every direction: onions, leeks, corn, beans, yams, cabbage, cassava, and avocados, mangoes and every tropical fruit, chickens, pigs, goats, and batteries and tennis shoes, too. People trade goods and news. This is the center; social, political, and economic life roll together. A woman teases and coaxes her client: Cherie, the onions are sweet and waiting just for you. The client laughs and teases back until they make a deal. They share trade, and laughter, gossip, politics, and medical and child-rearing tips. A market exchange, and a human exchange.

We are not against trade, we are not against free trade, but our fear is that the global market[1] intends to annihilate our markets. We will be pushed to the cities, to eat food grown on factory farms in distant countries, food whose price depends on the daily numbers game of the first market. This is more efficient, the economists say. Your market, your way of life, is not efficient, they say. But we ask, What is left when you reduce trade to numbers, when you erase all that is human?

— Jean-Bertrand Aristide, Globalization: A View from Below
In Bigelow and Peterson (eds.), Rethinking Globalization: Teaching Justice in an Unjust World (Rethinking Schools, Ltd.: 2002). 10.

Now I’d actually want to say a word or three in favor of mind-boggling scale, computer networks, and global markets. But I think what is most valuable in them — when they are valuable — is precisely their ability to interconnect and network bottom-up confederations of a lot of local, people-centered marketplaces, and to facilitate and loop in the kind of messy, informal, individually-driven, un-professional trade that Aristide celebrates. The highly centralizing, politically captured global market that aims to annihilate this, aims to annihilate it because it is a corporate-owned market herded, and driven by, some very powerful interests exercising tremendous amounts of interventionist political force in order to reshape their environments, to dominate their markets, and to protect their corporate empires, their preferred business models, and their commerce without a human face. Self-organizing markets are at their best when they are the Other Marketplaces. And a radical defense of trade and private property is essential precisely because it is only by sticking to our guns, and defending market forms down to the bottom, and especially in the hands of and for the use of the poorest and most marginalized, that we can move beyond half-measures, business balance sheets and number-crunching neoliberal economic reform; get out of the strip mall and into the bazaar; and get down into the people-powered Other Marketplaces that bring together the best of human sociality and mutual exchange.

Also.

  1. [1] [Sic.]

Bits & Pieces on Free Market Anti-Capitalism: the Many Monopolies

I concluded my earlier remarks on rigged markets and captive markets by offering this quick gloss on the free-market anti-capitalist thesis: that the recognizable patterns of capitalist economics result from the fact that certain key markets – importantly, the labor market, housing rental market, and other key markets are rigged markets – and in particular, indirectly-created captive markets, in which working-class folks in need of houses or jobs are driven into a market where they are systematically stripped of resources and alternatives, faced by artificially high costs, and generally constrained to negotiate with incumbent market players who have been placed in an artificially advantageous position over them through repeated government interventions in their favor.

Claims like this – that big government tends to disproportionately benefit big business at the expense of ordinary workers, by creating rigged markets and concentrating access to resources – may be controversial in libertarian circles now; but they are hardly unusual in the long view of libertarian history. Before the 20th century coalitions against the New Deal and Soviet Communism, libertarian writers, from Smith to Bastiat to Spencer, had little interest in tailoring their politics to conservative or pro-business measurements. They frequently identified capitalists, and their protectionist policies, as among the most dangerous enemies of free exchange and property rights. The individualist Anarchist Benjamin Tucker, writing in 1888,[1] called for Absolute Free Trade … laissez faire the universal rule, while describing this doctrine of complete laissez faire and free competition a form of Anarchistic socialism. Let’s bracket discussion of that semantic decision for the moment; the important contribution is Tucker’s identification and analysis of four great areas where government intervention artificially created or encouraged class monopolies – concentrating wealth and access to factors of production into the hands of a politically-select class insulated from competition, and prohibiting workers from organizing mutualistic alternatives. The Big Four monopolies Tucker identified as central to the Gilded Age economy were:

  1. The Land Monopoly – government concentration of ownership of land and natural resources through the enforcement of legally-fabricated land titles (such as preferential land grants to politically-connected speculators, or literally feudal land claims in Europe). Since Tucker, the land monopoly, already key to the Gilded Age economy, has radically expanded – with the frequent nationalization of mineral and fossil fuel resources throughout, and the emergence of local zoning codes, complex housing construction codes, land-use restrictions, “Urban Renewal,” municipal “development” rackets and Kelo-style eminent domain seizures, and a host of local policies intended to keep real estate prices high and permanently rising. In a freed market, land ownership would be based entirely on labor-based homesteading and consensual transfer, rather than on military conquest, titles of nobility, sweetheart “development” deals, or eminent domain seizures, and land would tend (ceteris paribus) to be more widely distributed, with more small individual ownership, dramatically less expensive, with more ownership free and clear, and could as easily be based on sweat equity and homesteading of unused land, without the need for any commercial cash exchange.

  2. The Money Monopoly – government control over the money supply, artificially limiting the issue of money and credit to a government-approved banking cartel. Tucker saw this as the source of both monopoly profits for the incumbent banks, and the artificial restriction of access to capital to those large, established businesses which the large, established banks preferred to deal with, while suppressing competition from mutual credit associations and other means by which workers might be able to pool their own resources and access credit on more advantageous terms than those offered by commercial banks. Tucker, in 1888, was writing about the Money Monopoly before the Federal Reserve or the conversion to a pure fiat currency, before the SEC, FDIC, TARP, banking holidays, bailouts, or the myriad other means by which government has insulated big bankers and financiers from market consequences, or erected regulatory barriers to entry which insulate politically-approved business models from market competition.

  3. The Patent Monopoly – government grants of monopoly privileges to patent-holders and copyright holders. Tucker argued that patents and copyrights did not represent a legitimate private property claim for their holders, since it did not protect any tangible property that the patent-holder could be deprived of, but rather prohibited other market actors from peacefully using their own tangible property to offer a good or service that imitated or duplicated the product being offered by the holder of the so-called Intellectual Property. These prohibitions, enforced with the explicit purpose of suppressing market competition and ratcheting up prices, in order to secure a long period of monopoly profits for the IP-holder, now constitute more or less the entire business model of Fortune 500 companies like General Electric, Pfizer, Microsoft, or Disney, and have only gotten longer and harsher in their legal sanctions, as IP monopolists have insisted on the need for more and more insulation from free market competition.

  4. The Protective Tariff – Tucker identified the tariff as a monopoly in the sense that it artificially protected politically-favored domestic producers from foreign competition. While the tariff has declined noticeably in political and economic importance since the 1880s, tariffs remain a distorting force within limited domains (for example, agriculture), and the specific mechanism of import tariffs is much less important, for Tucker’s purposes, than the overarching aim of protecting connected incumbents – whether through tariffs on incoming foreign goods, export subsidies to outgoing domestic goods, through political manipulation of fiat currency exchange rates, or through other means.

As I’ve tried to indicate, Tucker’s Big Four remain pervasive, and at least three of those four have in fact dramatically expanded their scope and invasiveness since Tucker’s original description of them. If we were to try to make a similar list of all the major ways in which local, state, federal and foreign governments now intervene to protect incumbent interests and place barriers to entry against potential competitors, there’s no knowing how many monopolies we’d be dealing in; but I think that there are at least four new major monopolies, in addition to Tucker’s original four, which are worthy of special notice for their pervasiveness and importance to the overall structure of the state-regulated economy.

First, the agribusiness monopoly: since the New Deal, an extensive system of government cartels, subsidies to ratchet up prices for sale in American markets, more subsidies to artifically lower prices for export, surplus buy-up programs,[2] irrigation projects, and the like have tended to ratchet up food prices for local consumers, to make importing and exporting produce over tremendous distances artificially attractive, to distort agricultural production towards the vegetable and animal products that can most successfully attract subsidies and government support projects, to favor large-scale monocrop cultivation over smaller-scale farming, and generally to concentrate agriculture into factory farming and industrialized agribusiness.

Second, the security monopoly: because of government’s massive expansion of standing military forces, and paramilitary police forces, the past century has seen the creation of a gigantic industry full of monopsonistic, government-driven rigged markets, with nominally private companies subsisting largely or entirely on tax-funded government contracts – companies like Lockheed-Martin, General Dynamics, Raytheon, the rest of the military-industrial complex, and the growing number of companies (such as Taser) who cater primarily to government police forces or other Homeland Security agencies.

Third, the infrastructure monopoly: that is, federal, state, or local government monopolization, tax subsidies, and allocation of access to transportation and communications infrastructure. So, for example, the monopoly offers a benefit to big-box retailers like Wal-Mart, whose business models are enabled by, and dependent on, government subsidies to road-building and maintenance, and the resulting artificially low costs of long-haul trucking. Similarly, incumbent media companies have built empires in part because access to broadcast bandwidth has been restricted and politically allocated through the FCC, while access to cable, telephone, and fiber-optic bandwidth has been tightly controlled and restricted through local governments’ monopoly concessions to incumbent cable and telecommunications companies.

Fourth, we might add regulatory protectionism: the proliferation of commercial regulations, government bureaucracy and red tape, business license fees, byzantine tax codes, government-enforced professional licensure cartels and fees (for everything from taxi-driving to hair braiding to interior design) – all of which, cumulatively, tend to benefit established businesses at the expense of new upstarts, to protect those who can afford the fees and lawyers and accountants necessary to meet the requirements from competition by those who cannot, and generally to the poor out of enterpreneurial opportunities, independent professions and more autonomous alternatives to conventional wage labor.

In addition, we should also mention the structural effects of mass criminalization, incarceration, and deportation of socially or economically marginalized people. Activist libertarians have often condemned, on a moral level* the government’s War on Drugs, or Border Apartheid, or other government efforts to criminalize the poor and subject them to imprisonment for victimless crimes. As well they should — these government wars are nothing more than massive violence and cruelty directed against innocent people. But there has not yet been enough recognition of the structural, economic by-products of government policies which, for example, lock 1 out of every 3 African-American men in a cage, potentially for years at a time, taking away years of their working life and permanently stigmatizing them as they try to reenter the labor market and civil society, or which constantly threaten undocumented immigrants with the threat of arrest, imprisonment, and exile from their homes and livelihoods. Such massive government violence, dispossession, and constraint on livelihoods is sure to have massive impacts on the conditions under which many poor and legally-vulnerable people enter into labor markets, housing markets, and all other areas of economic life.

This is, of course, only the beginning. You could easily subdivide some of these monopolies into smaller monopolies; and there are no doubt many more broad classes of monopoly which could be mentioned. But I think that Tucker’s Big Four, which are still present and have mostly grown in their size and importance since Tucker’s day, and these new Big Five, alongside them, get us a lot closer to understanding why so many markets work the way they work. They are, in any case, enough to make the point, and also to raise some likely objections from conventionally pro-capitalist libertarians, which we had better deal with before we spend too much time elaborating on the subject.

I’ll be turning to some of those objections in the next instalment.

  1. [1] State Socialism and Anarchism: how far they agree and wherein they differ
  2. [2] In particular, the USDA’s massive buy-up programs for school lunches and the military.

Bits & Pieces on Free Market Anti-Capitalism: Rigged markets, captive markets, and capitalistic business as usual

Like I said in the previous instalment, one of the things that we need to do, and don’t do often enough, is to carefully distinguish the broad meaning of markets as the sum of all voluntary exchanges, and the narrow meaning, and connotations, of markets as the cash nexus, and the particular forms of relationship and mediation which that brings along with it. The importance of consensual society, to any libertarian theory worthy of the name, is obvious. But the social and economic value of the cash nexus, as a social relationship, depends entirely on the context. What is positive and productive in a context of free exchange easily becomes an instrument of alienation and exploitation when it is forced on unwilling participants through government coercion.

In particular, for free-market anti-capitalists, there are at least three specific mechanisms we might mention — mechanisms that are especially important and especially pervasive, by which incumbent big businesses, and capitalistic arrangements broadly, benefit from rigged markets, at the expense of workers, consumers, taxpayers, and mutualistic alternatives to the statist quo:

  1. Government monopolies and cartels — in which government penalties directly suppress competition or erect effective barriers to entry against newcomers or substitute goods and services;

  2. Regressive redistribution — in which property is directly seized from ordinary workers by government expropriation, and transferred to economically powerful beneficiaries, in the form of tax-funded subsidies and corporate welfare, taxpayer-backed sweetheart loans, Kelo-style eminent domain transfers, &c.; and

  3. Captive Markets — in which demand for a good is created, or artificially ratcheted up, by government coercion — which can mean a direct mandate with penalties inflicted on those who do not buy in; or a situation in which market actors are driven into a market on artificially disadvantageous terms as an indirect (perhaps even unintended) ripple-effect of prior government interventions.

As an easy example of a directly-imposed captive market, consider the demand for corporate car insurance. When state governments mandate that every driver to purchase and maintain car insurance from bureaucratically-approved insurance companies, they necessarily shrink the scope of voluntary exchange, but they also dramatically bulk up a particular, fetishized form of cash exchange – by creating a new bill that everyone is forced to pay, and a select class of incumbent companies with easy access to a steady stream of customers, many of whom might not pay for their services but for the threat of fines and arrest. As an example of an indirectly-imposed captive market, consider the demand for professionally-certified accountants. CPAs perform a useful service, but it’s a service that far fewer people, and indeed far fewer businesses, would need, except for the fact that they need help coping with the documentation and paperwork requirements imposed by the government’s tax code. A CPA is essentially someone trained in dealing with financial complexity, but finances are much more complex than they would be in a free society precisely because of government taxation and the bizarre requirements and perverse incentives tend to make things much more complex than they would otherwise be. Although government has no special interest in benefiting the bottom line of CPAs, it is nevertheless the case that CPAs are able to get far more business, and at a far higher rate, than they would in a market without income tax, capital gains tax, sales tax, and the myriad other taxes that demand specialized expertise in accounting and interpretation of legal requirements.

A quick way to gloss the free-market anti-capitalist thesis, then, is that we hold that many of the recognizable patterns of capitalist economics result from the fact that certain key markets – importantly, the labor market, housing rental market, insurance and financial markets, and other key markets are rigged markets. And, in particular, that they are often indirectly-created captive markets, and that the extent to which these needs are met through through conventionally commercial relationships under the heading of the cash nexus — rather than being met through other, possibly radically different sorts of social relationships, like co-ops, homesteading, sweat equity, informal exchange, loosely reciprocal gift economies, grassroots mutual aid networks, and other mutualistic alternatives — has little to do with people’s underlying desires or preferences, and a great deal to do with the constraints placed on the expression of those desires or preferences. Commercial relationships and the cash nexus grow fat because working-class folks in need of houses or jobs are driven into a market where they are systematically stripped of resources and alternatives, where they are constantly faced by artificially high costs, and where they are generally constrained to negotiate with incumbent market players who have been placed in an artificially advantageous position over them through continuous government interventions in the incumbents’ favor.[1]

  1. [1] See also Scratching By: How Government Creates Poverty as We Know It.

Bits & Pieces on Free Market Anti-Capitalism: two meanings of “markets”

In order to get clear on the topic in a conversation about Free Market Anti-Capitalism, the obvious points where clarification may be needed are going to be the meaning of capitalism, the meaning of markets, and the meaning of freedom in the market context. We left-libertarians have spent a lot of time, and raised a lot of controversy talking about the first topic — whether capitalism is really a good name for the sort of thing that we want, the importance of distinguishing markets from actually-existing capitalism, and the possibility of disentangling multiple senses of capitalism.[1] There’s been a lot of argument about that, but here I’m happy to just defer to what my fellow panelists and other left-libertarians have already said. What I’d like to focus on is the less frequently discussed side of our distinction — not the meaning of capitalism, but the different strands of meaning within the term market. As absolutely central as this idea is to libertarian economics, I would argue that there are at least two importantly distinct senses in which the term is used:

  1. Markets as free exchange — when libertarians talk about markets, or especially about the market, we often mean to pick out the sum of all voluntary exchanges — any economic order based, to the extent that it is based, on respect for individual property, consensual exchange, freedom of association, and the freedom to engage in entrepreneurial discovery.

  2. Markets as the cash nexus — but we often also use the term in a different sense — to refer to a particular form of acquiring and exchanging property — that is, to refer to commerce and quid pro quo exchanges, typically mediated by currency or by financial instruments denominated in units of currency.

Of course, one of the central points of libertarian economics is that these two senses are interrelated: when they takes place within the context of a system of free exchange, social relationships based on the cash nexus – producing, buying, and selling at market prices, saving money for future use, investing money in productive enterprises, and the like are positive, even essential features of a flourishing society.

But while linked, they are conceptually distinguishable, and it’s important to see, first, that markets in the first sense (the sum of all voluntary exchanges) include the cash nexus – but also much more than the cash nexus. Family sharing is part of a free market; charity is part of a free market; gifts are part of a free market; informal exchange and barter are part of a free market. Wage labor (renting labor in return for cash), rent, corporate jobs, corporate insurance and the like can be part of a free market, but so are alternative arrangements – including many arrangements that clearly have nothing to do with capitalism3, and fit awkwardly, at best, with any conventional usage of the term capitalism: worker co-ops and consumer co-ops are part of the market; grassroots mutual aid associations and community free clinics are part of the market; so are voluntary labor unions (based on free association and the right to protest or quit), consensual communes, narrower or broader experiments with gift economies, and other alternatives to the prevailing corporate-capitalist status quo. To focus on the specific act of exchange may even be a bit misleading; it might be more suggestive, and less misleading, to describe a fully free market, in this sense, as the space of maximal consensually-sustained social experimentation.

The question, then, is whether, when people are free to experiment with any and every peaceful means of making a living, the sort of mutualistic alternatives that I’ve mentioned might take on an increased role in the economy, or whether the prevailing capitalistic forms would continue to predominate as they currently do. To be sure, the capitalistic arrangements predominate now – but that, of course, is no reason to conclude that the market has spoken. It would be enough if the predominance of capitalistic arrangements were the product of revealed preferences in a free market; but since we don’t have at present have a free market, it will, at the very least, take some further investigation – in order to determine whether those capitalistic alternatives prevail in spite of the unfreedom of actually-existing markets, or if they prevail, in part, because of that unfreedom.

Which brings us to the market as cash nexus. It is important here to see not only that the cash nexus doesn’t exhaust the forms of voluntary exchange and economic experimentation that might emerge within a freed market, but also that a cash nexus may exist, and may be expansive and important to economic life, whether or not it operates under conditions of individual freedom. Markets in our first, voluntary-exchange sense exist only where people really are free to produce and exchange – free market, in the voluntary-exchange sense of market, is really a tautology. But a market in the cash-nexus sense may be either free or unfree; cash exchanges are still cash exchanges, whether they are regulated, restricted, subsidized, taxed, mandated, or otherwise constrained by government action.

When free marketeers turn from the formal discussion of voluntary exchange, toward a substantive discussion of actually-existing economic relationships and financial arrangements, our analysis has to discuss more than just limitations on market activity. We often speak of market exchange and government allocation as cleanly separate spheres, as if they were two balloons, set one next to the other, in a closed box, so that when you blow one of them up, the other has to shrink to the same extent. That’s true enough about markets as social experimentation, but the relationship between cash-nexus exchange and government allocation is really more like two plants growing next to each other. When one gets bigger, it may overshadow the other, and stunt its growth. But they also climb each other, shape each other, and each may even cause some parts of the other plant to grow far more than if they had not had the support.

Any discussion of the cash nexus in the real world, then, needs to take account not only of the ways in which government limits or prohibits market activity, but also the ways in which government, rather than erasing markets, creates new rigged markets – points of exchange, cash nexuses which would be smaller, or less important, or radically different in character, or simply would not exist at all, but for the intervention of the state.

Thus, the social and economic value of the cash nexus, as a social relationship, depends entirely on the context. Kinds of interaction that are positive and productive in the context of free exchange easily become instruments of alienation and exploitation when they are forced on unwilling participants, in areas of their life where they don’t need or want them, through coercive government. The growth of markets as spaces for social experimentation is always a liberating development — but these social experiments may be mediated by the cash-nexus, or may be mediated by entirely different social relationships. The growth of markets as cash-nexus exchanges, on the other hand, may be liberating or violating, depending on whether those relationships come about through the free interplay of social forces, or through the direct or indirect ripple-effects of government force and the coercive creation of rigged markets.

I’ll be turning to the analysis of that context, and the way that free market anticapitalists apply it to the real-world business-as-usual, in the next instalment.

  1. [1] For examples, see my Anarquistas por La Causa and What’s in a name?, Roderick Long 2006-04-08 and 2008-06-27, Steve Horwitz 2009-12-31 and 2010-01-07, Gary Chartier 2010-01-19, Kevin Carson 2010-03-06, Sheldon Richman 2010-03-02 and 2010-04-16, etc.