A Leftist pitch for competition and economic growth

A common conservative disparagement of liberals and leftists is that we are anti-business. I often use Adam Smith’s arguments to show precisely the opposite. Leftists dislike monopolies and oligopolies. Oil companies and phone companies are two examples of oligopolies: their products, services, and pricing are so similar that their collusion with each other is pretty obvious. In classical (i.e. Smith’s) economic terms, cartels dominate both markets, suppress competition, suppress innovation, and charge prices far higher than they could charge in competitive markets. In other words: like monopolies, oligopolies are market-failures.

Like Smith, I believe that competitive markets promote more innovation. I also agree with Smith’s argument that competition is a mechanism for providing strong, consistent downward pressure on prices for goods and services. And I agree with Smith’s arguments for supporting the mechanisms that maintain competition. In Wealth of Nations(1776), Smith argues for a strong system of civil courts and police enforcement of property rights, including the right to collect royalties and license-fees on intellectual property. In other words, a strong regulatory regime is necessary for competitive markets. So, in Adam Smith’s terms, deregulation is a bad economic idea because the absence of regime-enforcement re-opens markets to their natural tendency toward monopolies and oligopolies.

I use “natural tendency” with caution, because Gramsci warned that references to a ‘natural world order’ are often used to forcibly suppress the questioning of assumptions that should be questioned. Is there really something inherent in the mechanism of markets that tends toward concentrated domination, if left unchecked by the police power of regimes? I can give some empirical evidence. Where do markets operate within weak enforcement-regimes? Narcotics trade in Afghanistan. Blood diamonds in central Africa. These practices are strongly dominated by a few cartels, a few warlords, because there is no regulation of activities which are illegal in themselves. Even in legal regimes, the rich get richer because they have “discretionary wealth” (meaning something above bare livelihood) that they can risk on investments.

John Maynard Keynes (1936) and Robert Heilbroner (1953) both argued that Smith’s metaphor of the “invisible hand” was misused by neo-classical economists. Hayek and Friedman implied that the invisible hand means that markets are naturally self-regulating without government interference. Like Smith, Keynes argued that markets are not inherently self-regulating. Smith did argue for market-Liberalization: he wanted commoners to have the right to engage in private contracts that would be enforced by the public courts if something went awry between the contracting parties. Smith also argued for the removal of direct aristocratic control of small businesses. That is Liberalization in the sense meant from about 1780 to 1860. Smith’s argument for ‘removal of aristocratic control’ can also be understood as an argument that rich elites should not dictate the terms of local nor long-distance commerce. The 7th Amendment of the U.S. Constitution echoes this sentiment. Commoners–meaning people like you and me–have the right of access to courts to protect our property claims. We need that for the same reason that Keynes argued: markets are not self-equilibrating.
The application of the term “free” to markets is a beautifully deceptive piece of neoliberal propaganda. When the courts and regulatory agencies are underfunded and weakened, commoner-rights get weakened and wealthy elites are able to concentrate more wealth unto themselves. Markets are either competitive or non-competitive. If a market gets deregulated, it quickly gets dominated and therefore noncompetitive.

In search of better macro-economic metaphors

In addition to the ‘invisible hand’ metaphor, there is another metaphor (mis)used to imply that the growth of one big firm will ‘naturally’ lead to broad-based economic growth. The expression is “A rising tide lifts all boats.” In this metaphor, what does the rising water represent? Cash? Available capital? Why is that water self-leveling? Why does it self-redistribute under all boats? Does cash “naturally self-distrubte” in an even way under all the individuals in an economy? No. And not even a 21st-century Leftist would want an economic system designed to distribute wealth out to a dead-level condition. First of all, that would undermine the incentives for harder work, risk-taking, and innovation. Secondly, we have already seen the disastrous consequences of the kind of state-Communist regime that can force all the wealth in an economy to distribute in a “leveled-out” way. Totalitarian regimes like Stalin, Mao, or Pol Pot are another form of market-failure, in which the oligarchy becomes the oligopoly: the political regime can impose the same sorts of marktet-domination and anti-competitive distortion as a dominant corporation, like ATT or ExxonMobil.

So: the right-wing interpretation of “rising tide” metaphor is misleading in its implication that a deregulated market is a self-equalizing market. But even a simplistic Left-wing interpretation of the metaphor would mean disaster. Furthermore, the metaphor makes too many assumptions. Rising water only self-levels because of many factors: stable temperature; the orbit of a nearby moon; the gravity that pulls the water down; and the ground underneath that holds the water up.

A better metaphor for a deregulated market would be the formation of a planetary system. Deregulation, in this metaphor, means taking away all the other factors except for gravity, which we will leave as the force that represents the profit-motive in markets. What happens? A nebula of more or less evenly-distributed resources collapses together into a single mass. Too simple? Yes; add in one more force–momentum–and observe how the nebula collapses unevenly into a spinning disk. Perhaps momentum represents the competition among elites, who secure domination in a few different economic sectors. What is the result, in planetary terms? A nebula of roughly-even distribution of resources collapses into one or two primary stars, eight or nine planets, and perhaps fifty smaller moons and outer-system dwarf planets. The uneven distribution of resources in a planetary system begins to resemble the radical inequality of a deregulated market.

So maybe we should return to the “Rising-tide” metaphor and retool it as a rhetorical weapon against deregulation. What keeps the temperature even enough to keep the water liquid? Thermal regulation represents government regulation. And let us be explicit in saying that the water represents an even distribution of opportunity: which is why all children, rich and poor, deserve excellent, well-funded universal public education, decent housing, safe neighborhoods. What does the underlying ground represent? The underlying supportive structure of the regime that prevents the water of equal-opportunity from draining away.

Let us extend this metaphor further to bring in the lifeguards and rescue-boats of a welfare system. We want to see better-performing boats (firms) designed through constant, competitive innovation. We want to ensure the freedom of the whole population to use its weird, unpredictable genius to build better boats, boats that perform in ways no-one had imagined before. But we know that in a flotation free-for-all, 80% of the boats will fail. If we simply allow innovators to drown when their boats fail, we will promote a risk-averse population that will stick with older, already-proven boat designs. If we want to promote a culture of design innovation and risk-taking, we need to have an active rescue-system that prevents failure from being fatal by ensuring the welfare of the whole population. Furthermore, a big part of this population is not gifted in boat design (business innovation), and many of the people never learn how to swim. But they do other things like row, keep the ships clean, and cook better food than the boat-designers. The welfare system of lifeguards can and should prevent them from economic drowning too; it should not assume that they can swim in the waters of opportunity. Furthermore, the same safety-net system that supports the non-swimmers is the one that protects the real risk-takers. Not only is the lifeguard system affordable by the society as a whole; but it is actually a vital component of the promotion of risk-taking, innovation, and economic growth.

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