Introduction
The economic readings this past week with respect to the ideal of perfect competition and its antithesis, market control, compelled me to think about how free our markets really are. I've come to the conclusion that our world economy is really just a race for market control and all the talk about free markets is really just code for the freedom of very few individuals and businesses to pursue total market control.
Property Rights
One of the most important concepts in the western psyche, and particularly the American psyche, is the right to property. I contend that property rights, particularly intellectual property rights, represent one of the biggest obstacles to a truly free marketplace. Patents and copyrights, for example, are all about conferring market control. In 1980, the Bayh-Dole Act ( http://en.wikipedia.org/wiki/Bayh%E2%80%93Dole_Act ) was passed which made it possible for federally funded research to be privately patented. Prior to the Bayh-Dole Act, federally funded research was placed in the public domain and anyone could take advantage of the knowledge. After Bayh-Dole, federally funded research could be patented by private organizations who could then charge expensive licensing fees for use of the knowledge. This, of course, grants tremendous market control to those who hold the patents and, by extension, to those who can afford the licensing fees.
Subsidies
In local economies, subsidies are often used to entice large businesses into a certain area. The problem, however, is that small, locally owned businesses in the same industry are not granted the same tax breaks and are often driven out of business as a result of not being able to compete on such an uneven playing field. David Cay Johnston provides an anecdote about how this plays out in chapter 9 of his book Free Lunch.
Agricultural subsidies tilt the playing field in the international arena by lowering the costs of producers in countries, such as the US, where those subsidies are common, thereby giving their agricultural products a price advantage in the global marketplace. Producers in countries without such subsidies, especially developing nations, can't compete in the global commodities market and are often driven out of business due to cheaper, subsidized imported products.
For a more comprehensive take on the harm that farm subsidies do, visit: http://www.heritage.org/research/reports/2012/06/farm-bill-2012-agriculture-policy-ripe-for-reform
Inflated Currencies
Another hindrance to free market competition, particularly for agricultural commodities, is the inflation of currencies due to a single industry, often the oil industry. In smaller, developing nations, the ability to produce oil has a tendency to inflate the value of the currency of that country, thereby making all other commodities less competitive. Furthermore, as other industries fail as a result of this tilting of the market toward a single industry, that industry then has the competitive advantage in the labor market, which drives a race to the bottom for wages with workers in need of a job.
Political Power
The reinforcing feedback loop of wealth leading to political power which then leads to more wealth is another hindrance to a free market. Political power allows people and businesses the ability to influence laws and regulations in such a way as to eliminate competition (for example with subsidies as mentioned above).
Political power also undermines the free market by allowing elites to engage in wantonly criminal activity with impunity (Glenn Greenwald, With Liberty and Justice for Some). This confers a competitive advantage in the marketplace because non-elites are bound by a fear of prosecution and thus, mostly, operate within the confines of the law while elites are not necessarily constrained by the law. I would say that The Reckoning series we read underscores this ability by some to engage in massive fraud without fear of prosecution. This ability to operate outside the law, therefore, confers competitive advantage and thus market control.
Conclusion
Even though our economy is rife with stumbling blocks to a truly free market place, I think that grass roots awareness can counter these pressures. The creation of the "local, living economy" is a step toward a freer marketplace and an antidote to the market controlling oligarchy currently plaguing our economy.
The economic readings this past week with respect to the ideal of perfect competition and its antithesis, market control, compelled me to think about how free our markets really are. I've come to the conclusion that our world economy is really just a race for market control and all the talk about free markets is really just code for the freedom of very few individuals and businesses to pursue total market control.
Property Rights
One of the most important concepts in the western psyche, and particularly the American psyche, is the right to property. I contend that property rights, particularly intellectual property rights, represent one of the biggest obstacles to a truly free marketplace. Patents and copyrights, for example, are all about conferring market control. In 1980, the Bayh-Dole Act ( http://en.wikipedia.org/wiki/Bayh%E2%80%93Dole_Act ) was passed which made it possible for federally funded research to be privately patented. Prior to the Bayh-Dole Act, federally funded research was placed in the public domain and anyone could take advantage of the knowledge. After Bayh-Dole, federally funded research could be patented by private organizations who could then charge expensive licensing fees for use of the knowledge. This, of course, grants tremendous market control to those who hold the patents and, by extension, to those who can afford the licensing fees.
Subsidies
In local economies, subsidies are often used to entice large businesses into a certain area. The problem, however, is that small, locally owned businesses in the same industry are not granted the same tax breaks and are often driven out of business as a result of not being able to compete on such an uneven playing field. David Cay Johnston provides an anecdote about how this plays out in chapter 9 of his book Free Lunch.
Agricultural subsidies tilt the playing field in the international arena by lowering the costs of producers in countries, such as the US, where those subsidies are common, thereby giving their agricultural products a price advantage in the global marketplace. Producers in countries without such subsidies, especially developing nations, can't compete in the global commodities market and are often driven out of business due to cheaper, subsidized imported products.
For a more comprehensive take on the harm that farm subsidies do, visit: http://www.heritage.org/research/reports/2012/06/farm-bill-2012-agriculture-policy-ripe-for-reform
Inflated Currencies
Another hindrance to free market competition, particularly for agricultural commodities, is the inflation of currencies due to a single industry, often the oil industry. In smaller, developing nations, the ability to produce oil has a tendency to inflate the value of the currency of that country, thereby making all other commodities less competitive. Furthermore, as other industries fail as a result of this tilting of the market toward a single industry, that industry then has the competitive advantage in the labor market, which drives a race to the bottom for wages with workers in need of a job.
Political Power
The reinforcing feedback loop of wealth leading to political power which then leads to more wealth is another hindrance to a free market. Political power allows people and businesses the ability to influence laws and regulations in such a way as to eliminate competition (for example with subsidies as mentioned above).
Political power also undermines the free market by allowing elites to engage in wantonly criminal activity with impunity (Glenn Greenwald, With Liberty and Justice for Some). This confers a competitive advantage in the marketplace because non-elites are bound by a fear of prosecution and thus, mostly, operate within the confines of the law while elites are not necessarily constrained by the law. I would say that The Reckoning series we read underscores this ability by some to engage in massive fraud without fear of prosecution. This ability to operate outside the law, therefore, confers competitive advantage and thus market control.
Conclusion
Even though our economy is rife with stumbling blocks to a truly free market place, I think that grass roots awareness can counter these pressures. The creation of the "local, living economy" is a step toward a freer marketplace and an antidote to the market controlling oligarchy currently plaguing our economy.
Thanks for another enjoyable post, Daryl. The very first point, about property, is one that I've given a lot of thought to over the years. The line from Lennon's "Imagine" says it all , to me: 'imagine no possessions. I wonder if you can.'
ReplyDeleteThe notion of possessions - i.e., property - is one that we learn from the earliest age. Yes, we also are taught to share, but "my" or "mine" seems to be a lot more frequent an utterance than "yours" or "ours," by the pre-kindergardeners. In interpersonal relationships, "mine" can create some real problems.
Are possessions part of human nature? Innate and instinctual? I don't know, but I do know that sharing can be learned. As can empathy.
It is necessary to get inside the mind of the bankers and others who caused the economic meltdown of 2007, to understand their thought processes (or lack thereof)? To get inside the minds of oil executives, to understang why we have oil extraction from tar sands and by fracking? Coal executives, to understand why whole towns are blanketed in coal dust, and entire mountains are moved?
I remember watching the tobacco quasi-documentary, "Barbarians at the Gate." I just couldn't understand the millions of people involved in the tobacco business. What sorts of personal choices resulted in that vocation, and what sorts of community social values supported it? The biggest mystery, to me, is the lawyers who spent years, and earned $millions, defending a product that was actively killing people. What do these lawyers learn, in law school?
Perhaps a more relevant question for us is, what are tomorrow's businesspeople learning, in business school?
Greg, you ask some interesting questions, and I wonder if the answer actually lies with biological imperatives (to what extent, I can't say). All life on this planet is an endless competition for resources. The human faculties of reason, symbolic communication and fine motor skills greatly amplify our competitiveness for resources because they allow us so much control over the environment around us. At one time in human history, speed, agility and ingenuity as a hunter would have been the measure of success (and, for males, demonstration of the ability to provide enough calories to support a female through gestation). Now, we demonstrate success and status by purchasing power. Driving a Mercedes Benz is the modern day way to demonstrate the ability to provide calories. I wonder if the biological need for status, both for males and for females, has the power to override the moral codes that culture has imbued us with because those biological needs have a longer evolutionary history than culture.
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