for a better version of economic freedom

At this point in the economic crisis, it strikes me that the only thing we can be sure of is that our dominant concept of economic freedom will undergo a transformation. Beyond that, who knows? What isn't at all clear is what status markets will have in the future. Assumptions that we need 'less' market freedom are pretty unsophisticated. We certainly need different market freedom, and I think one might plausibly argue that we need more profound market freedom. Take two examples of markets technically working, but offending some innate sense of the freedoms they were once deemed to uphold.

Firstly, we now have a glimpse inside the delirious nonsense of financial innovation and the bonus culture that accompanied it. The fact that a crisis precipitated this moral outcry should not dupe us into thinking that the crisis is the object of the moral outcry. The system was just as offensive when it worked, we just hadn't paid enough attention. Whether or not anyone noticed before, it strikes many of us as implausible that hard-working but only moderately talented individuals can be worth their remuneration packages or finance alone can be worth as much as it once purported to be, as a proportion of national economic value.

Secondly, fly Ryanair. Scrap that. Never, ever, ever fly Ryanair. Here are some reasons why not. I recently got stung by forgetting to check in online, which now costs £40... simply for them to hand you your boarding pass (I tried to check in online for the return flight, but of course it wasn't possible by then, which secured them a second payment). Typically one ends up paying about five times the advertised ticket price. Ryanair offends a fundamental principle of liberal economic morality, that the price and the value should be roughly the same thing. Companies should not be in the business of punishment and coercion. I tried here to explain why the rise of 'free' offends in a similar way.

The founding philosophical lie on which the discipline of economics is founded is that it's possible to split questions of efficiency from those of morality. But it isn't, at least not where people are involved.* Different definitions of efficiency carry different moral presuppositions, impact in different moral ways, carry different moral consequences. Presumably an economist could explain why both of the above two scenarios are efficient, at least pre-crisis in the case of the first, and try to leave it at that. But what each demonstrates is a capitalist psychology and culture which pays scant regard for the integrity of publicly visible prices as politically legitimate carriers of value.

One thing I try to demonstrate in my PhD is that we ended up with a variant of neo-liberalism whose respect for markets (narrowly defined) is actually rather impoverished. The Chicago School paradigm, for example, has maximum respect for price theory (i.e. the economic method) but only half-hearted respect for the price mechanism (i.e. the socio-political device). All manner of organisational forms and practices can then be justified in terms of some abstract concept of efficiency, even when they appear to stray drastically from the ideal of 'fair', transparent market exchange.

This links to the famous distinction between markets and capitalism outlined by Braudel (who recently ended up in a Liam Byrne speech - interesting times when management consultants are quoting French Marxists.) Markets “involve no surprises, in which each party knows in advance the rules and the outcome, and for which the always moderate profits can be roughly calculated beforehand.” They require and sustain transparency.

By contrast, capitalism involves hierarchical power relations that stem from monopolistic positions, "in which competition – the basic law of the so-called market economy – had little place and in which the dealer had two trump cards: he had broken off relations between the producer and the person who eventually received the merchandise…; and he had ready cash which served as his chief ally." This is a simple distinction between horizontal and vertical forms of coordination.

As Chris Dillow points out, bonus culture is in fact only explicable in terms of power. Meanwhile it scarcely needs mentioning that Ryanair make virtually all of their money through exploiting the power an airline has over its customers - price-setting on routes where there is no effective competition, adding charges for nothing whatsoever, trying to dupe customers into buying insurance by mistake, charging monopoly prices for refreshments once in the air etc. Yet neither of these would be captured in the orthodox neo-classical understanding of market power, at least in the eyes of regulators. Deregulation and competition ought 'logically' to benefit the consumer, but in reality unleash new distinctly capitalist freedoms that are exploited in pursuit of political, cultural and psychological domination.

Without wanting to revive my old bugbear, mobile phone companies offer another excellent example. Confronted with OfCom's neo-classically inspired, lightly regulated, perfectly competitive 'market', what do the five networks do? Shave their profits to cut their prices, or enter a power struggle for cultural control of every hoarding, public space, musical event or gross mass gathering they can slap a logo on? Both are undoubtedly examples of competition, but the first is the fantasy taught in economic text books while the latter is the political behaviour that characterises 'actually existing capitalism'. If it weren't for Brussels, we'd probably still be paying 1999 prices for mobile phone calls.

In On Justification, Boltanski & Thevenot offer a persuasive excavation of the moral presuppositions that underpin classical economics. They show how Adam Smith's Theory of Moral Sentiments creates the preconditions of The Wealth of Nations: the valorisation of the spectator perspective, the autonomy of the individual, the capacity to separate people from things. These are all part of a moral framework of value that then enables an empirical framework of valuation, in which the free, price-mediated exchange of things between individuals can be seen, from the economist's spectator perspective, as producing the best outcome. To commit to the price system involves a certain moral vision of freedom in the first place. (For the Brownites out there, this involves questioning the very conditions of your efficiency/equity split, and not simply trying to bring the two into some closer harmony).

I'm sick of current capitalism with its hidden logic, its cultural strategies, its anything-but-market logic. And sick of the economists who would read this and laugh because I don't properly understand price theory. Go and read some Hannah Arendt - politics occurs when things appear publicly. In this respect, your definition of an efficiency that is going on behind people's backs, over people's heads, is fundamentally anti-political. Presuming a model of individual freedom, but never actually defending one, is really no more liberal than the advertisers and HR experts who specialise in manipulating individual freedom. 

Time for a version of freedom rooted in institutions that is publicly visible and comprehensible. Return to the original Smithian notion that price and 'real' value have some correspondence, and remember that this was a moral statement and not simply a technical one. Anything else is just capitalist disdain. Rant over.

* You can have a separate debate about whether the efficiency of machinery can be subject to moral evaluation.

Comments

[Bruce Davis]

We can rant some more on this next week but I am starting to get some interest in a similar line of argument (even got a laugh out of some bankers on Tuesday when saying that oikonomics was what we did before economists got hold of it) from some cross party lobbyists/politicos.

The question I guess is whether we end up moving backwards to a pre-nietzschean conservative morality or whether a call for real transparency (in the face of the ubiquitous 'black box' approach to information plastered across all newspapers today) might prompt the emergence of new models of morality that avoids such a retreat and allows us to react to events/situations (and stay free).

[RickWaghorn]

Very interesting if you apply all of the above to the workings of the Google mind...

'All manner of organisational forms and practices can then be justified in terms of some abstract concept of efficiency, even when they appear to stray drastically from the ideal of 'fair', transparent market exchange...

You ever run Google AdSense.. ;)

[pete]

Will wrote:
"...it strikes me that the only thing we can be sure of is that our dominant concept of economic freedom will undergo a transformation."

Can you promise me that? Absolutely promise me that? *Purlease* ?

[Will Davies]

Pete - I don't think it's an unrealistic claim. Capitalism depends on a concept of human freedom to survive, that much is clear. But this vision is constantly mutating, especially at times of crisis.