Seeing the market through the spectre

By Panduka Karunanayake

Leftist ideologues like to create an image of ‘the market’ as a terrible place, like how grown-ups frighten children with their ghost stories. The market is portrayed as a ruthless, heartless machine that thrives on unfairness and corruption, crushing the poor and fattening the rich. It must have become easier to create this image after the Soviet bloc fell in the 1990s and China emerged out of communism soon afterwards, because after that people quickly forgot that socialist and communist economies too have markets – even markets every bit as ruthless, heartless, unfair and corrupt as any capitalist market. Today, these ideologues can write as if the market and capitalism are synonyms. Everything ‘un-socialist’ can be easily ‘explained away’ by saying that it ‘promotes marketisation’.

No amount of argument or explanation would change these ideologues’ minds – after all, an ideologue is a person who pursues an ideology in an inflexible manner. But let me set out some related matters, for the benefit of the rest of us.

Emergence and evolution of the market

Markets have probably existed throughout human existence, because human beings are social animals that thrive on social interaction. There is an illuminating passage in Charles Darwin’s book The Voyage of the Beagle, where he described an encounter with the inhabitants of Tierra del Fuego in South America, who were ‘primitive’ hunter-gatherers and nomads with no previous encounter with civilisation:

“Some of the Feugians plainly showed that they had a fair notion of barter. I gave one man a large nail (a most valuable present) without making any signs for a return; but he immediately picked out two fish, and handed them up on the point of his spear. If any present was designed for one canoe, and it fell near another, it was invariably given to the right owner.”

This passage shows that they were well-versed in the moral principles – such as free choice, trust, fairness and reciprocity – associated with exchange of goods and services that form the basis of the functioning market.

The market became prominent after the emergence of agriculture about 10,000 year ago. Agriculture enabled farmers to produce a food surplus, which then enabled the rest of the villagers to work on other crafts – promoting division of labour and specialisation. This created an overall increase in the quality of the villagers’ lives, because they now had a wider variety of produce to consume. Villagers now depended on each other more, for the produce they wished to consume. As the village increased in size and complexity, a place where producers and consumers could meet, to exchange goods and services, became a necessity. In the physical realm this was the marketplace, and in the conceptual realm it was the market. Initially, exchange occurred through the barter system without a medium of exchange, but the invention of money made it easier.

But until industrialisation, this market was small and sluggish. It produced very little, compared to today. Most of what a village produced was consumed within it, and only a tiny proportion of it left the village, to be consumed by outsiders – the market was still not much more than the marketplace.

Reason for smallness

The reason for this smallness was not entirely because there were no industrial factories. The villagers could have produced more if they wanted to, but they didn’t, because they saw that any extra produce created problems. There were difficulties with storing it, protecting it, preserving it or transporting it elswhere, and in any event the lords could easily expropriate it under the feudalistic modes of production. Items that were considered luxury items were an exception; they were carried to distant destinations by camel, caravan or boat.

But starting in the eighteenth century, industrialisation changed all that. Factories produced large quantities of produce (or ‘commodities’) cheaply, and the market expanded to distribute a much larger variety and quantity of goods much more widely. Specialisation became the norm and a necessity. The crucial factor that made all this possible was probably the improvement in transport. Look at your lunch plate today, and try to figure out from where and how far each of the food items on it – not to mention the plate itself or the energy for the fire that cooked your lunch – have come from.

Today, production and consumption are almost totally separated from each other (with a few exceptions, like farmers who sell their produce by the roadside in front of their homes, and ‘factory outlets’). It is the market that enables this to happen. The market, which is no longer simply the marketplace, gives us access to a bewildering variety of goods and services, thereby enabling us – even the poorest amongst us – to enjoy a greater choice and higher quality of life, compared to pre-industrial times. The healthcare and education that even the poorest amongst us enjoy would not reach them if not for the market.

As an example, let us take soap. Until industrialisation this was a luxury item that only the elite enjoyed. In Roman times, even the elite cleaned themselves mostly by simply immersing themselves in their baths and rubbing off dirt; indeed, using soap would have made the bath too disgusting to get into. Soap was available only to those in the very highest echelons of society. The masses were ‘dirty’ and their skin was infested with scabies, pediculosis and lice, and they commonly suffered diseases like impetigo and erysipelas – they lacked even the water necessary to wash themselves (especially hot water in cold climates). But today, soap is so ubiquitous that we take it for granted – it was industrialisation that enabled its cheap mass production and the market that enabled its wide distribution.

Value of simple things

The real value of something as simple as soap was driven home powerfully to me in the aftermath of the 2004 tsunami, when people had lost everything and were accommodated in make-shift camps. What did they ask for, from the donors and volunteers who went to help them? First, they asked for food, water and certain medicines. A few days later, they began asking for soap, a change of clothing and sanitary pads: after three or four days, they were itching and suffering with fungal skin infections. That was an unfortunate re-enactment and reminder of the pre-industrial life of the masses. I remembered how a textbook of public health that I had read a few decades earlier had cleverly classified infectious diseases according to whether they were prevented by soap and water, clean drinking water, safe food, and so on. The post-tsunami experience showed me the sagacity of that – and the value of the ubiquitous soap, industrialisation and the market.

In his book The Third Wave, Alvin Toffler compared a modern-day market to an efficient telephone exchange or switchboard. A switchboard connects thousands of senders and recipients accurately and enables messages to be sent across to their intended destinations – like producers, consumers, and goods and services in the market. Like telephone messages, goods and services are produced, sent across and consumed according to need and availability: demand and supply.

Such a market cannot exist on its own. It needs inputs from important sectors in society, such as law and order (which upholds the right to private property, prevents or punishes theft, and arbitrates when there are contractual disagreements), education (which creates an educated and trained workforce, not only for manufacture but also for distribution), communication, energy, transport, ports, etc. Such external supports have existed not only in capitalist markets but also in pre-capitalist and socialist markets. These supports are provided because everybody realises that markets are useful to everyone, especially when the population expands and the demand for commodities increases.

So, to say that something should be abhorred because it promotes ‘marketisation’ is disingenuous.

Organising the market

Markets can be organised in various ways. It helps to think of these as lying on a spectrum ranging from capitalism to communism, which are the extreme forms at the two ends. In-between, there are lots of compromises, combinations or ‘middle ways’. For instance, the current Chineses model is sometimes called state capitalism – a good example of a middle way.

But the natural form of the market that emerged spontaneously was the free market: a market where no authority-imposed restrictions or controls, nor introduced any encouragements or inducements. The activities in the free market merely recognised the concepts of private property and voluntary exchange, and operated on demand and supply. That was all.

Opponents

Throughout this time, the free market has had many opponents who have tried to impose limits or controls to it. Division of labour and specialisation were resisted – by the cultural elite who tried to maintain the status quo in society, such as the caste system in ancient society and feudal-peasant relations in medieval times. During industrialisation when factories came up, that was resisted too – by guildsmen who felt that their business was threatened, and those like the Luddites who felt threatened by the new manufacturing technology. Karl Marx proposed that private property, including ‘the means of production’, should be taken over by the state and brought under its control.

Some of the concepts that they used against the growth of the free market were traditional values such as loyalty and caste-based duties (especially upheld by the cultural elite), simplicity in life and charity as well as opposition to ‘ursury’ and banks (especially the clergy), and equality. It is only now, after centuries of change, that words like ‘industry’ (which initially meant industriousness), ‘entrepreneurship’ and ‘individualism’ have emerged as ‘good words’, to create an environment conducive to a free market. Charles Dickens’ novel Martin Chuzzlewit nicely captured the mood of the era when industrialisation was struggling to emerge through the feudal society, by portraying the struggle of a typical ‘upstart’ who had to go to America to make a fresh start.

According to Stephen Fry, even today, the typical British comedy mostly parodies the upstart’s ineptness (“celebrate failure”), whereas the typical American comedy glorifies the industrious entrepreneur or smart-aleck (“life is improvable”). When we read comments about the market, we must take care to ‘read’ this subtext too.

Inequality

Ironically, inequality had previously been tolerated and even celebrated, as long as the only inequality was between the elite and the masses – the masses were ‘equal’ in their poverty and the elite were rich by birthright. But after industrialisation, the moment the masses gradually became enriched and a middle class emerged, inequality became a big social issue. When a part of the masses remained poor and another part became better-off, socialism was born. Different segments of the masses quickly became each other’s enemies – thanks to socialism. It was an example of applying the brakes even before the vehicle had started to move in earnest. They were ennobled by socialism’s new words, like ‘fraternity’ and ‘equality’ – which basically meant, ‘Those who are not poor like you are not one of you, and have no right to be rich if you too cannot be rich’.

But while the leaders of socialism may have harboured such beliefs, their proletariat comrades had simpler minds. In his book The Road to Wigan Pier written after World War One, George Orwell, himself a socialist, reflecting on the tensions and contradictions in English society as it grappled with this new-found inequality and ‘class struggle’, wrote:

“To the ordinary working man, the sort you would meet in any pub on Saturday night, Socialism does not mean much more than better wages and shorter hours and nobody bossing you about….[No] genuine working man grasps the deeper implications of Socialism. Often, in my opinion, he is a truer Socialist than the orthodox Marxist, because he does remember what the other so often forgets, that Socialism means justice and common decency….His vision of the Socialist future is a vision of present society with the worst abuses left out, and with interest centring round the same things as at present – family life, the pub, football, and local politics.”

Orwell’s main message was that any effort to ‘improve’ society, by whatever name, that had lost touch with the common man was bound to deteriorate into a fascism. The remainder of the twentieth century proved him right.

Today, Orwell’s England has come through quite nicely in spite of the disintegration of the British Empire soon afterwards, and shows none of the class struggle and poverty Orwell’s and Dickens’ books have recorded. So, should we champion an equality of the poor, or should we patiently work towards a gradually enriching society with a tolerable level of inequality?

Necessary controls

At the same time, it is also advisable to control some forms of exchange in the market. For instance, if a country considers that it is necessary to ensure food security through its own, local cultivation of important crops, it is wise to put in place some safeguards to protect local agriculture from the adverse effects of competition from imported foods, at least for important foods. Even advanced capitalist countries like USA and Japan do this (for wheat and rice, respectively).

Similarly, it would be prudent to protect certain crucial markets, such as the energy sector and ports. It is also important to ensure distribution of crucial goods & services (such as healthcare, basic education, basic housing, basic clothing, basic transport) for all members of society, with a view to protecting the poor who have limited purchasing power. This requires the institution of safety nets and price control. In this age of climate change, resource depletion and environmental degradation, nobody would argue against environmental protection, which naturally requires the imposition of certain restrictions on the free market. Finally, nobody would argue that sectors such as national defence and law & order should be floated in the free market. So markets do need judicious controls and regulation.

More than ‘free’

On the flip side, in some markets there are mechanisms created specifically to encourage a bigger flow of goods & services than what the natural, ‘free’ market would sustain. These include patent laws, laws restricting monopolies, bankruptcy laws, the financial and share market, and so on; some of them may be good, while others are not.

The market is then not merely a place of exchange; it is also a place to make massive profits, where the falling crumbs accumulate to produce huge volumes of ‘wealth’. There are those who would profit exactly from this, while such ‘wealth generation’ or ‘productivity’ brings no intrinsic value to society while needlessly destroying our environment and culture – this can then become the new status quo that these new elite wish to protect.

Conclusion

A free market would promote exchange of goods & services and increase the volume of exchange, and this in turn would increase employment, productivity, taxation and funds for welfare expenditure. Both restricting it and encouraging it, while sometimes necessary, must be done only cautiously. Naturally, therefore, both extremes – and their supportive ideologies – are not good. What we need to have is a ‘middle-way’ market that enables enough economic activity and protects the poor, while protecting the environment for future generations.

So, there is no need to fear the market. What we need to do is understand it, be able to predict its behaviour, and try to modify it so that it creates the benefits we need and avoids harm. The child must grow up, overcome the fear of ghosts and learn to deal with darkness. Disingenuous, sleight-of-hand arguments that promote the darkness are of no use, and their supportive ideologies can only lead to fascism – as the twentieth century amply taught us.

The writer teaches medicine in the University of Colombo (email:

panduka@clinmed.cmb.ac.lk). He acknowledges helpful comments from Professor Sirimal Abeyratne (Professor of Economics, University of Colombo) and Dr G. Usvatte-aratchi.