The Appreciative Justification for Competitive Markets and its Association with Lockean Political Theorising

In the absence of convincing empirical support for the neoclassical framework—an impossible task given the above ontological criticism—mainstream economists have usually taken the much stronger performance of capitalist economies compared with socialist economies as broad justification for their emphasis on market-based competition. Of course, very few people today are prepared to advocate the bureaucratic stupidity that was central to the command economies of the Soviet era. Nor is anyone denying that competition suitably channelled by cultural and legal norms plays a role in capitalist economies in sharpening the performance of firms. Is competition, however, the only thing that is important to capitalism? And, since capitalism is not a monolithic system, which capitalist system are we talking about? Why not, for example, imitate Denmark, a capitalist country that is very prosperous and has a comprehensive welfare state? Why pick the mean-spirited social policies of the contemporary United States? If one is to copy the United States, why not copy its active industry and innovation policies? Better still, why not pick the best of everyone’s experience? Complacently satisfied with economic fundamentalism, we do not devote anything like sufficient resources to studying what other people do—or how the world is changing. Experience does not support the adoption of pure-market policies. As Ormerod points out, free-market policies are contrary to the whole of economic history since the Industrial Revolution:

With the possible exception of the first wave of industrialisation in Britain, every country which has moved into the strong sustained growth which distinguishes industrial, or post industrial, societies from every other society in human history, has done so in outright violation of pure, free-market principles.

Markets, competition and entrepreneurship are all very important, but by themselves they are not enough. Infant industries—even when they have become industrial giants—have sheltered behind tariff barriers; government subsidies have been widespread; there has been active state intervention in the economy; and, perhaps most important of all, successful companies have exercised power and control over their markets.[76]

Indeed, this is true of the whole of economic history.

The evolutionary and information schools of economics see this stronger performance as a reflection of the restlessness of capitalist economies—seeing economic growth as being driven not by market equilibrium but by the lack of such equilibrium. Market imperfections such as knowledge asymmetries, knowledge spill-overs, monopolies and disequilibrium could drive innovation and economic growth.[77] The stronger economic performance of capitalist economies might be due, therefore, not to a lack of government coordination, but to the combination of largely decentralised decision making and incentives and particular forms of government coordination involving strategic positioning, a very broad interpretation of market imperfections, strong investment in social capital and knowledge creation, social mobility and social risk sharing.

Despite these powerful objections, unregulated markets continue to be seen by economic fundamentalists, mainstream economists and many contemporary policy makers as the general rule, the natural state of affairs and the normative ideal, which real markets should emulate. As we have already seen, contemporary economic analysis then perceives government action as an intervention in the market, which has to be justified as a correction that will move the real situation towards that idealised state. This approach erects a sharp dichotomy between the public and private spheres—spheres separated by sharp boundaries enclosing distinct roles, which the above alternative approach denies. This dichotomisation, with its sharp separation of roles, has more to do with our rationalist heritage and with Lockean political philosophy than with the more nuanced relationships and permeable boundaries we encounter in practice. Importantly, different societies conceptualise these relationships differently, suggesting that these are culturally determined distinctions rather than universal principles. These distinctions also reflect our reductionism, which makes it difficult to conceptualise higher levels of organisation, collective purposes and coordinating roles.

This strategy produces an essentialist view of the State, which effectively excludes governments from any role in coordinating economic activity or redistributing income or risks—beyond providing a limited number of public goods such as maintaining property rights, enforcing contracts and maintaining public order—a position inconsistent with long historical practice. Economists in central agencies then act as Plato’s authoritarian guardians in enforcing this questionable approach to policy analysis, with non-acceptance of this framework seen as irrational and not deserving respect. Of course, this stance conveniently ignores the unequal structural impacts of the macroeconomic instruments welded by central agencies and the Reserve Bank.