The free market, first envisioned by Adam Smith in Wealth of Nations and later spread across the world with the same militarism and missionary zeal that made Christianity so prominent, is an empty and unworkable ideal. Recent events have demonstrated aptly that, far from the Smithian vision of the market as the solution to poverty, inequality, and tyranny, it is - as Mikhail Bakunin observed so long ago - the vessel of "privilege and injustice." More than that, it has brought us to the brink of an economic meltdown on the scale of the Great Depression.
In principle, free of government intervention and regulation, the market is self-regulating. The self-interest of the proprietor is turned in favour of the common good by what Smith called the "invisible hand" of competition and consumer demand, somewhat like economic natural selection. Competition for labour ensures fair wages. Competition for custom and product demand ensures fair prices. And unsound or unethical business practices are eradicated, since those businesses that act recklessly and irresponsibly for short-term gain ultimately go under whilst those with foresight and rigorous self-discipline will prosper.
This is nothing short of wishful thinking, the product not of proven strategy but of a mythology that justifies greed. The need for trading standards regulations to protect consumers from things such as price fixing by "the butcher, the brewer or the baker" and other industries from whom "we expect our dinner" by "their own self interest" belies the very idea that competition ensures fair prices. Revelations of exploited labour, whether migrants here in the west or impoverished peoples in third-world sweatshops, not to mention the disingenuous practice of moving factories away when a country gains labour protection laws and the right to organise, utterly destroy the notion that "the demand for men" regulates wages in the same way as demand "for any other commodity" so that it "naturally increases" with "the increase of national wealth."
The notion of "survival of the fittest" - Herbert Spencer's infamous misappropriation of Darwinian evolution into economics - is also fallacious, because when companies face insolvency due to their own bad practice they threaten the stability of the entire market. The bedrock of capitalist economics is "confidence," without which the whole charade crumbles. So a corporate body that brings about its own downfall is more comparable to a species being wiped out by man, causing calamity for an entire ecosystem, than to natural selection favouring the greater survivor with little ecological fallout.
The disastrous ripple effects of such as the run on Northern Rock, the collapse of Bear Stearns or Lehman Brothers, and most dramatically of the US House of Representatives' rejection last week of Henry Paulson's $700bn bailout plan, speak of a system far too fragile for Smith's invisible hand to operate effectively. George Bush summed it up, with characteristic inelegance, on Tuesday when he said "this sucker's going down." It is also ironic that the system's fallibility was most devastatingly revealed by its reaction to the failure of a measure that defied its core principles. If Senator Jim Bunning was right in calling the bailout "financial socialism," why did its death cause a 705 point fall in the blue-chip share price, a drop on a scale not seen since the 684 point drop in September 2001? Surely the failure of "trickle-down communism," in venture capitalist Bill Perkins' words, shouldn't cause the Dow Jones Index to plummet 6.63 percentage points? Capitalists are being retaught a lesson that should have been learnt in the Great Depression, when the Wall Street Crash brought down the entire global economy.
What we are seeing now is the inevitable result of the frenzy of deregulation and privatisation that has continued, unabated, since the Thatcher-Reagan years. It was precisely the dogmatic culling of lending regulation that allowed subprime mortgages, the inevitable collapse of which catalysed the entire current turmoil, to exist in the first place. But the effects of the neoliberal ideology have had consequences far beyond Wall Street and the City long before now, for people far less culpable and financially secure than the brokers and traders. Under market fundamentalism, measures to protect the poor and working classes - the minimum wage, universal health care, the welfare state, health and safety law, etc - are unwelcome "barriers to free trade."It is only because of concerted grassroots struggles that workers in the developed world enjoy such basic rights today. Even now, business lobbying, mass media propaganda, and pro-business politicians are at work to destroy these vital protections. Using Britain as an example, the tabloid scare stories - exaggerations, isolated incidents presented as the norm, and outright lies - about "Elf n Safety Nazis," "sick-note Britain," and "scroungers" demonstrate the level of contempt by the market and those in its pocket towards welfare for those who need it.
But the double standards are palpable. No voices from the City or Wall Street, their lobbyists in the halls of government, or the newspapers under their financial control ever rail with the same venom against corporate welfare and tax breaks. In fact, when a politician tries to rebalance such privilege they face strong and continued political and financial pressure (what from trade unions would be called bullying and bribery) until they relent. Alastair Darling's attempt to tax non-domiciles and his subsequent u-turn is but one recent example of this. If the welfare state for the rich is threatened, we are reminded that their investments are "vital" to our "economic stability" and that such measures will merely force them to "take their money elsewhere."
approved by Congress on its second reading, the working classes would only see their misery multiply, one can almost see the logic. It fails only once you realise that those being bailed out not only caused this crisis, but will inevitably bring about the next one as well, if allowed to continue.
Far more drastic measures are needed to ensure not only a reduction in fallout now, at the apex of the current turmoil, but also a fairer system in its aftermath. Whilst a bailout of the failing financial institutions ensures that we don't see another Depression, it offers little help to the ordinary people facing mounting costs and debts, bankruptcy, and the repossession of their homes. Pumping money into the markets, as world Central Banks already have to the tune of $300bn, will keep the system afloat, but does nothing for those already overboard.
At present, it seems that any outcome other than utter economic meltdown will involve taxpayers taking on the debts and losses of the worst offenders, cuts in public spending to balance the vast sums spent subsidising the rich, and a flawed ideology patched up with token reforms until the lessons of history can be forgotten again. We can also expect lots of finger pointing and arbitrary blame as those in power do their very best to avoid the obvious conclusion.
The very idea of global capitalism and the free market, flawed at inception, is the cause of our current economic woes. It has failed, again, the challenge to prove its legitimacy and needs to be entirely overhauled.