Chasing the Norm

Australian academic and blogger on politics, international relations, and culture

A friend of capitalism?

Sinclair Davidson of the Australian quasi-libertarian blog Catallaxy, had a letter in the Fin Review recently pushing a familiar right wing interpretation of modern left wing views about the GFC:

Mark Latham points out the obvious problem with the Rudd government’s ETS policy. Mr Rudd thinks that global warming is a consequence of market failure, yet creates a market to ‘solve’ the problem (Review 20 February 2009, pg. 3). Unfortunately, Mr Rudd’s dilemma is more complex and problematic than that. In his The Monthly essay, he rubbishes the so-called efficient markets hypothesis as being the core belief underlying ‘neo-liberal policy prescriptions’. While that view is debatable, it is surprising then that the Carbon Pollution Reduction Scheme White Paper, released as recently as December last year, waxes lyrical about the importance of the proposed carbon market being efficient. Of course, efficient markets are economically important, but if you really believe that markets cannot be efficient, you cannot also believe that an ETS will result in lower carbon emissions in a cost-effective manner.

This attack is of course a misrepresentation of Rudd & the modern left’s view of markets. They are not moving away from markets or capitalism in any philosophical or significant policy sense. And yet, this straw man that “the left has declared the market dead” is being pushed by both the left and right. Here we have a case where both sides of politics are pushing for a simplification of one sides argument so as to score political points (the left short term-as things get worse-; the right long term -assuming a recovery-).

Yet in the interest of honesty against letters such as above, and because I think the right’s better politically positioned here, its worth detailing just what Rudd wrote. His essay may have made it to the media with a number of bold claims such as “The great neo-liberal experiment of the past 30 years has failed”, but he is a useful proxy for the complexity inherent in the modern lefts view of the markets these days.
For a start, Davidson (echoing the untrustworthy Latham) misrepresents Rudd’s concern with the efficient market theory. Rudd takes it to task not for its efficiency as for the claimed resulting benefit for society :”if the markets are efficient and prices fully informed, there is no reason to believe that asset-price bubbles are probably; and if these do occur, markets will self correct…In the neoliberal view, markets are spontaneous and self-regulating products of civil society, while governments alien and coercive intruders”.

This probably better represents the divide between the modern left and right today. The right seems to hold that markets are naturally occurring and regulating creatures. A product of nature, and as such out to be left as untampered with as possible. Plonk down any group of people together in the wilderness, all with needs and wants and they will form a market to organize the flow of resources between them and in this way achieve the goals and requirements of both the individuals and the society at large.

The left on the other hand sees markets as a social construct that work well when set up on top of other more base requirements for survival (our group of people would first need to establish social norms of interaction (ie no theft, equality), protection from outside threats (security) and protection of the weakest (ensuring the sick or those unable to “pay” would not starve). Once these requirements are met, then they could create a market to trade the surplus food & skills and begin building up the society. And should this market work in a way that damages one of the more base goals (ie someone ends up too wealthy and is able to turn others into defacto slaves) then society needs to step in and change the market to return it to a more acceptable practice

As I mentioned in a recent post, this right wing view about the naturalness of the market occurring wherever humans cohabit, saw some expression in Iraq in 2003, where a guiding principle of the early days of the occupation was that once freed from the constraints of the authoritarian socialist government of Saddam Hussein, a free, efficient and just markets would flourish. Of course it didn’t and was immediately abused by those who had the resources to affect it (tribal leaders, sectarian leaders, and criminal elements) which inevitably led to the people abandoning it as an ineffective way to gain necessary supplies & services, which in turn led to more abuse.

Now, read any of the great neo-liberal texts (such as Friedrich Von Hayek’s Constitution of Liberty) and you will find the rule of law as a central if not defining requirement for society. These were not anarchists (as the picture in my last post joked), but the example of Iraq shows how dependent the market is upon society and is better seen as a social creation, rather than a naturally occurring (or naturally ordering) element of human life.

Thus, even in headline claims by Rudd such as “free-market fundamentalism… has been revealed as little more than personal greed dressed up as an economic philosophy” you can see the caveats. It is not markets, but “free markets”, it is not just supporting markets, but “fundamentalism” that is the real heart of the problem. Almost every time Rudd mentions the target there is some adjective before it such as “extremism” “excessive” “particular brand of”. These are both rhetorical weapons (in a rather well written and argued piece) and also efforts to refine his target from all capitalism to just those specific elements which have caused the problems in the worlds economic markets at this point. Likewise when Rudd makes positive arguments in favour of social democracy he stresses it’s “capacity to balance the private and the public, profit and wages, the market and the state”, identifying the Hawke-Keating governments “ambitious and unapologietic program of economic modernization… harnessing the power of the market to increase innovation, investment and productivity growth”. Indeed whilst the right, from Howard on down to newspaper letter writers is wrapped up in rejecting the straw man it has built for Rudd’s actual position, the old socialist left has been equally grumbling at the number of pointed digs at the “new political voices of the extreme left…and prevent extreme reactions from the far Left… taking hold” found within the essay. Rudd may be advocating social democracy, but of it’s favorite tool tariffs he is scathing “soft or hard, protectionism is a sure-fire way of turning recession into depression”

If you want to know his real view, you need look no further than the end of the introductory paragraphs where Rudd asserts that “Not for the first time in history, the international challenge for social democrats is to save capitalism from itself: to recognise the great strengths of open, competitive markets while rejecting the extreme capitalism and unrestrained greed that have perverted so much of the global financial system in recent times”

Thus no one who’s read Rudd’s essay in the monthly could honestly find a contradiction between his governments support for a Cap and Trade market to deal with Greenhouse Gas’s and his attacks on Neo-Liberalism. But as I mentioned before, there are forces on the left and right who would love to believe that Rudd is claiming the end of capitalism and markets. But it’s simply not the case.

* The headline is taken from Franklin Delano Roosevelt’s claim to be the “best friend capitalism ever had” for his efforts to return confidence to the American economic system via his New Deal approach. It’s a glib line, but in outcome he did more than the more puritan like Hoover to actually preserve capitalism and the integral role of markets within society.