Market Fundamentalism vs. a Moral Economy

by Fred Block, Rockridge Institute, BEN Newsletter - Spring 2005

The 2004 election provides progressives with an unprecedented opportunity to change the terms of our national political debate. The United States is currently suffering from a "vision vacuum"-the absence of a shared idea of where we are headed as a society. Those who are able to fill the vacuum with a powerful and persuasive account of what has gone wrong and how it can be fixed will gain great political leverage.

Progressives should start by exposing Market Fundamentalism-the economic theory that guides the current Administration's foreign and domestic policies. Market Fundamentalism is a quasi-religious faith that unregulated markets will somehow always produce the best possible results. It rests on the idea that markets are natural and government regulations are artificial.

Similar to other fundamentalisms, it paints the world only in black and white. Taxes, by definition are bad, so another round of tax cuts is always desirable since individuals, argue the fundamentalists, are sure to use the money more wisely than governments. A parallel logic lies behind the enthusiasm for replacing government workers with private contractors-even for such delicate tasks as interrogating prisoners-since market employment, they say, provides incentives for efficiency that government employment always lacks.

Similar to other fundamentalisms, its ideas do not have to be tested; they are simply The Truth. Even if the economy is still sluggish after three large doses of tax cutting, there is no reason to reconsider the claim that tax cuts are the royal road to a stronger economy.

Or when the scientific community agrees that global warming is actually happening, there is still no need to worry. The scientific evidence is never persuasive for Market Fundamentalists since energy markets, like other markets, are necessarily benign.

Where did Market Fundamentalism come from? It was embraced by the right wing in the United States in the 1970's to help paper over divisions between its different constituencies. Market Fundamentalism appeals to large sections of the business community for reasons that are mostly cynical. While businesses lobby continually for different kinds of government assistance--contracts, subsidies, support in foreign markets, protection of their "property" rights, and so on-- they switch to Market Fundamentalism when they want to oppose taxes, regulations, and other government measures that constrain their behavior. Embracing Market Fundamentalism helps them get the benefits of government assistance without having to pay the costs.

At the same time, Market Fundamentalism is deeply appealing to social and religious conservatives. They are reassured by its moral absolutism and its deep hostility to government social programs. One of their Ten Commandments has become: "Thou shall not interfere with the market." But in voting for politicians who embrace Market Fundamentalism, millions of lower income citizens end up strengthening the same corporations, such as prescription drug firms, that are squeezing them economically.

While its political usefulness has been enormous, Market Fundamentalist policies are not particularly effective. However, the Market Fundamentalists have been quite brilliant in transforming the theory's weakness into political strength. When critics challenge specific Market Fundamentalist proposals, they typically use three or four different arguments that do not add up to an alternative policy vision.

Some will insist that the promised efficiency gains are illusory, some will argue that the new policy gets the incentives wrong, some will emphasize the unfair social consequences, and so on. Using these different arguments makes the opponents appear scattered and divided. Moreover, the opponents fail to respond to Market Fundamentalism as a moral argument. As a result, even when Market Fundamentalists lose the particular battle, they still end up winning the war. They are alone in advancing a positive policy vision, so Market Fundamentalism becomes further entrenched as the basic way in which public policy issues are framed.

Market Fundamentalism's central flaw lies in its claim that encouraging acquisitiveness automatically produces good results. This claim conflicts with what actually happens in market situations and with the tenets of all of the world's great religions that warn of the dangers to society and the individual soul that come from selfishness and materialism. Market Fundamentalism ultimately rests on a fairy tale in which each person's pursuit of his or her self-interest automatically serves the common good.

The reality is that market exchange can serve the common good, but only when individuals obey moral injunctions and legal rules. When people cheat their customers, sabotage their competitors, avoid paying taxes, and ignore environmental rules, there is no Invisible Hand that blesses these transactions. Market Fundamentalism hides the fundamental reality that actual markets work because of a structure of legal and moral constraints that people have constructed over the decades to avert the disasters produced by excessive greed. Market Fundamentalism is so dangerous because it strips away all of the mechanisms and moral understandings that protect us from runaway and unregulated markets.

A Useful Analogy: Think of the folktale of the Sorcerer's Apprentice-a more timeless tale than the television show about Donald Trump's apprentice. The boy had often watched as the wizard used a spell to make the broom carry pails of water up from the river. In the sorcerer's absence, the disobedient boy uses the same spell to command the broom to carry water, but then, to his horror, realizes that he has forgotten the command to halt the process. The runaway broom now creates an artificial and unnecessary flood, and when the desperate apprentice breaks the broom in two, both halves fetch water at an even more rapid rate.

The Sorcerer represents the accumulated wisdom of society that has found ways to make dangerous things like fire and markets work for the common good. But the Apprentice's search for a short cut turns the wizard's benign magic into a dangerous and destructive force. The lazy and disobedient Apprentice, in short, is a metaphor for the havoc created by uncontrolled markets and the tyranny of market values. The results include corporate scandals, a deterioration in personal morality, and a coarsening of the culture exemplified by the excesses of "reality" shows in which people are encouraged to betray others for money.

Market Fundamentalists are cheerleaders for the Apprentice. Disregarding the accumulated wisdom of history, they foolishly insist that this callow youth has the maturity to be trusted with dangerous powers. They are utterly oblivious to the risks to the social order of greed and selfishness. They fail to understand that the pursuit of self-interest has to be balanced by respect for law, morality, and the needs of others. If not, the market becomes a destructive force.

The Sorcerer's Apprentice story brings together all of the criticisms of excessive reliance on markets, so that the opponents of Market Fundamentalism can be more unified. The pragmatic critique is that actual markets often fail because there are not enough buyers, not enough sellers, not enough information for market participants, or similar problems. This simply restates the idea that the Apprentice cannot be left alone; markets need other institutions such as regulatory agencies, professional organizations, and clear rules to produce positive outcomes.

A second critique is that markets are not "natural" structures as Market Fundamentalists claim. Rather the power and resources of particular actors tend to distort market situations-as when ENRON and other big energy traders manipulated California's newly deregulated energy markets. That was a pure instance of turning over command to the unsupervised Apprentice. Finally, the social justice argument is that because of these established inequalities, market outcomes are often deeply unfair. When, for example, the Apprentice is left in charge of the labor market, low wage workers have no choice but to accept whatever wages and working conditions employers choose to offer. This is why we surround the labor market with regulations, including minimum wage laws and forms of public provision that give at least some of the poor access to food, housing, and health care. If we gave full authority to the Apprentice, as Market Fundamentalists recommend, the claim that all citizens are equal would quickly be reduced to empty rhetoric.

Most importantly, the Sorcerer's Apprentice metaphor suggests a positive alternative. Instead of belief in The Market's unquestioned wisdom, there is a long history of efforts to create a Moral Economy in which the market works to support our deepest values-fairness, democracy, compassion, responsibility, and protection of our natural and social environment. A Moral Economy, for example, would reconstruct the labor market to block employers from spiraling down the "low road" of low wages and minimal benefits. It would prevent firms like Wal-Mart from paying such meager wages that many of its employees have to rely on food stamps to feed their families. Energy markets would be reshaped so that prices actually reflect the real cost to society of fossil fuels as compared to renewable sources of energy. Global commodity markets could be restructured so that producers in poor nations are guaranteed a price for their goods that allows them to escape poverty and deprivation.

A Moral Economy, rather than Market Fundamentalism, would give us a stronger and more effective economy. At the time of the Civil Rights movement, conservatives argued that moving too quickly towards racial equality would weaken our economy. But the outcome was exactly the opposite. Desegregation in the South coincided with the region's most dynamic economic growth. Similarly, one of the nation's most generous social programs-the G.I. bill that helped millions of World War II veterans to return to school-played an important role in fueling the economic growth of the 1950's and 1960's. Comparable efforts today to shift away from dependence on fossil fuels and to provide upward mobility for millions of low wage workers could also produce huge economic dividends.

Much of our political debate centers on the question of which is better-more market or more state. The time has come to change the terms of the debate. Building a Moral Economy does not require vast increases in the command and control capacity of the Federal Government. We can do it with skillful policies that harness the energy of markets to accomplish broader social ends. The real issue now is do we want a Moral Economy or one where the Sorcerer's Apprentice runs amok? Why Discuss Market Fundamentalism Now?

In the short term, Progressives face a strategic dilemma. On the one side, most are participating in a broad electoral coalition to defeat the current Administration. The delicate task of holding together such a coalition makes it difficult to argue explicitly for a progressive agenda. On the other side, the terms of political discussion have shifted so far to the right that changing the premises of the national debate is an urgent task. The dilemma is further intensified when we consider what might happen after the election. A Democratic President will be immediately caught in a series of political binds-policy traps that could easily destroy the new Administration's credibility and effectiveness. These binds are likely to be particularly tight given that the Republicans will probably retain control of one and probably both Houses of Congress.

The first of the binds centers on the huge and unsustainable government budget deficit that the new Administration will inherit. Republicans are likely to resist efforts to restore higher tax rates on wealthy individuals and corporations, so the new Administration would be tempted to embrace fiscal conservatism and limit overall civilian spending. But such a choice would perpetuate the fiscal squeeze at the state and local level and it would do nothing to help working families with the cost of health care and higher education. The second bind results from the enormous pressure from the Right--and conservative Democrats-- to sustain the U.S. efforts to quell the Iraqi insurgency regardless of the cost in lives and dollars. And even if the new Administration finds a way to bring the Iraqi adventure to an early conclusion, other problems will remain. The ongoing terrorist threat will make it risky for the new Administration to reduce U.S. military spending from the extravagant levels of the Bush Administration. The inevitability of new terrorist atrocities will also make it logical to keep the U.S. on a war footing. Failure to escape both of these binds would pretty much assure that the Republicans would regain the White House in 2008.

But there is an approach that Progressives can follow that handles the immediate strategic dilemma and increases the likelihood that a new Administration would ultimately be able to escape these policy binds. We can use the last months of the election campaign to advance a systematic and unified critique of Market Fundamentalism. While pushing concrete policy proposals would be divisive and counterproductive, there is nothing divisive about showing that the differences between the candidates can be understood in terms of the contrast between Market Fundamentalism and Moral Economy. On the contrary, elaborating a resonant political language for rejecting the rule of the Sorcerer's Apprentice could enormously enliven our national political debate.

Moreover, showing people the close family resemblance between Market Fundamentalism and religious fundamentalisms has multiple benefits. It weakens the economic conservatives because voters in the United States tend to distrust people who claim to have a direct line to The Truth. It also directly attacks the religious fundamentalists who have been dictating policy in such key areas as stem cell research and reproductive health. It opens the way to political debate in which evidence and facts actually matter.

Progressives can insert this new language into the campaign without any complicated negotiation with candidates or campaign committees. By developing the critique of Market Fundamentalism in weblogs, op-eds, letters to the editors, speeches, and the day-to-day conversations that we have with other citizens, we can start now to change the basic categories that people use for evaluating political ideas. Most importantly, getting these ideas into broad circulation now could help to change the terms of the post-election debate. On the domestic front, contrasting the vision of a Moral Economy with the vision of Market Fundamentalism can lay the basis for a powerful rhetoric of fairness to reverse the Republican successes in shifting the tax burden away from the wealthy.

In terms of foreign policy and the war on terrorism, the argument requires a few more steps. But the basic idea is that Market Fundamentalism --combined with an exaggerated faith in military might--has undermined the effectiveness of U.S. foreign policy. In Iraq, for example, our reconstruction policies have been based on enormous reconstruction contracts to giant U.S. based multinational corporations that bring U.S. and other foreign workers in from abroad and do little to provide jobs for millions of unemployed Iraqis. The occupation government has also made Iraq a poster child for free market policies by limiting tariffs to 5% for a two year reconstruction period. They have eliminated almost all obstacles to foreign investment in the Iraqi economy and placed a 15% ceiling on the income tax for individuals and corporations. Since turning over a country's economy to the Apprentice has never created prosperity, it is not surprising that the Iraqi economy is a disaster area.

The United States should be working to build democracy in every corner of the globe. But Market Fundamentalism actually undermines democratic values. We cannot successfully export democracy without also exporting economic justice and economic opportunity. Iraq in this sense is a microcosm of a much larger problem. For more than twenty years now, the United States has been aggressively exporting Market Fundamentalist policies to other nations.

This country tells foreign governments that they must lower their tariff barriers, dismantle controls over capital flows, cut government spending, and privatize state-owned industries. Most of the world's developing and transitional economies have followed these policies and the overwhelming majority of them have been moving backwards?not forwards—on all of the key indicators of economic success reported by the World Bank and the United Nation's Human Development Reports. Market Fundamentalism, in short, has subverted economic development in most of the poorer regions of the world.

Even before the disaster in Iraq, the global failure of Market Fundamentalism had badly undermined our nation's credibility in the developing world. It is now far easier for Islamic Radicals to demonize the U.S. as a greedy superpower bent on continuing the subordination of all Muslims. The failures of Market Fundamentalism have made recruitment easier for Al Queda and similar groups. In short, a new Administration needs a radically new strategy to counter the terrorist threat. The centerpiece of such a strategy must be a new approach to global development that abandons Market Fundamentalism in favor of exporting economic opportunity and economic justice. What Now?

It took conservatives years to propagate the belief in Market Fundamentalism as the right way to think about government policy in the U.S. Breaking its hold and establishing an alternative frame is a formidable task. But the struggle to construct a Moral Economy is hardly new or alien in the American landscape. It is a continuation of a long progressive tradition in the United States. In our effort to reconcile market activity with our highest values, we walk in the footsteps of activists who struggled for the abolition of slavery, for women's suffrage, for the eight hour day, for collective bargaining, for cleaner air and water, and for economic security for the elderly. In the ongoing contest between Moral Economy and Market Fundamentalism, it is the former that speaks to what Lincoln called "the better angels of our nature".