Alternatives to Free Market Fundamentalism

The juxtaposition of two editorials in a mainstream broadsheet makes interesting reading. The one argues that Gordon Brown’s advocacy of a tax on global financial transactions, the so called Tobin tax, suggests that the British government has, at long last, given up its slavish adherence to ‘the ideology that believes in deregulated, untaxed, ever-expanding global capital markets as an end in themselves’. The other argues that ‘China must be held to account for its political repression’. The connection between these two lies deep within the aforementioned ideology.

When the Austrian school of twentieth century neo-classical economists came to prominence, the world appeared to be divided between two distinct ideologies, free market capitalism and centrally planned socialism. The free market theoreticians, most prominent of whom were Ludwig von Mises, F A Hayek and Milton Friedman, argued that this simple dichotomy, which could be expressed in various terms: free market forces or central planning, capitalism or communism, individualism or collectivism, freedom or serfdom, represented the only alternatives. For them, as discussed in ‘The Rise and Fall of Management’,there was no possibility of a third way. When Hayek was writing ‘The Road to Serfdom’ during the Second World War, he feared the world was moving towards a socialist totalitarian future. He argued that any step in that direction, no matter how small, could only end in a full blown centrally planned, socialist state. In a world which seemed to be dominated by Hitler and Stalin this may not have been unreasonable.

But things have changed since those days. Hitler was defeated, the erstwhile fascist regimes of Europe and South America disappeared and communism spectacularly failed. The immediate threat of totalitarian regimes in advanced economies has somewhat receded, to be replaced, some would argue, by the threat of being controlled and manipulated by privately owned global corporations, especially those City organisations concerned not with the creation of wealth but the manipulation of its ownership.

Despite these radical changes to the world, the free market ideology has remained largely intact. The prime source of this intransigence seems to lie in America, despite the euphoria in some quarters at Obama’s election. His struggle for a universal health provision is denounced by the now mainstream Republican right as a sure sign of his communist intent. In Britain the government’s fear of the nationalisation label is born of the same neurosis.

Even the ideology’s practical failure, amply demonstrated by the current crisis, has not so far resulted in any serious challenge. Till now. The Tobin tax, which has widespread support in Europe, is the first significant sign that the City may not achieve its self-interested desire for a return to ‘business as usual’.

The editorial on China highlights another flaw in the free market ideology. It has to be acknowledged that China is a highly successful competitor in today’s deregulated markets. But the Chinese population does not enjoy the freedom of the West, nor rule by an independently administered legal system. But nor does China appear headed for the economic failure free marketers would predict. The traditional socialist model of a centrally planned economy has been long replaced by powers granted to individual, and in many cases privately owned, corporations that take economic decisions at their own level. The connection between economics and politics seems to be surprisingly loose and flexible. At the very least, the neo-classical mantra that there is no third way appears to be disproved.

A more likely analysis might be that the unregulated free market economy and the centrally planned communist alternative, are both examples of Weber’s ideal types, neither fully realised in the real world in their pure forms. Moreover, it seems probable that there are a million or more different possible routes between these two over-simplified extremes, which might achieve different combinations of economic and social success.

For example, a step down the road to fairness in the imposition of taxes might not necessarily betoken an attempt to subvert a free market economy into one which would, in the end, have to be centrally planned. It was, after all, Adam Smith, who argued that ‘It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion.’ That was the more or less universally held view till the Austrian economists voiced their neurotic fear of totalitarian socialism and the destructive impact of any small steps in that direction.

One thought on “Alternatives to Free Market Fundamentalism”

  1. It may seem extraordinary that the Labour party [albeit New Labour] has slavishly adhered to ‘the ideology that believes in deregulated, untaxed, ever expanding global capital markets as an end in themselves.’Gordon Brown has been forced to consider something like the Tobin tax to placate his erstwhile supporters since the catastrophic collapse of the banking sector. The realisation that we seem to be ‘controlled and manipulated by privately owned global organisations’ is disturbing. We in the west seem to have gone too far in that direction. ‘The Rise and Fall of Management’ is clear that the either/or belief of the Friedman economists is no longer valid. Would a middle way promote greater stability both internally and internationally?

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