Harry Geels: The five counterforces against free markets
This column was originally written in Dutch. This is an English translation.
By Harry Geels, written in a personal capacity
‘Free markets’, and in its wake capitalism, are directly or indirectly opposed from five parts of society: science, Big Business, Big Government, central banks and artists (especially writers). In recent years, for instance, Ilja Leonard Pfeijffer has also started his fight against capitalism.
It pains me that one of my favourite writers, Ilja Leonard Pfeijffer, is stirring increasingly vehemently on social media as a ‘capitalism basher’, especially through his recent essays in De Morgen. He blames capitalism for many problems, such as inequality and pollution, even though capitalism no longer actually exists. As argued earlier, we are in a very diffuse system that we could rather call ‘corporate socialism’, in which there is a great deal of government interference, or intermingling of large corporations and governments.
Let us first explain the current system in more detail, to reveal the fallacy of the ‘capitalism bashers’. I will then describe the five groups in society that have difficulty with free markets. I will conclude with some remarks on the evolution of social systems. Incidentally, I argued earlier, without mentioning groups by name, that there are five reasons why various people have difficulty with free markets. Let us first summarise three of them.
A free, efficiently functioning market is characterised by the ‘wisdom of the crowd’. Some people have trouble with that, thinking they know more than the crowd. In addition, a market is amoral (has no morality, it only processes information). Moralists have trouble with that because they prefer to impose their morality (in the form of standards and taxonomies) on the market. Furthermore, a free market efficiently handles the allocation of capital. People who believe in the socially engineered society prefer to plan for themselves.
Current system
Why markets are no longer free today is best depicted in Figure 1, where we divide society into government, corporations and central banks. Banks, especially systemic banks, operate at the intersection of all three. They are mostly private, but have to implement many government policies, have the social privilege of money creation and are heavily influenced by monetary policy. In most countries, government already accounts for more than half of GDP. How can this be a capitalist system?
Figure 1
1) Science
The first party to take issue with free markets is science. Nobel laureate Milton Friedman discusses two ‘enemies’ of free markets in this short YouTube video: scientists and Big Business (see point 2). Friedman, obviously disliked by the groups described here because of this opinion, says that many scientists (not all of them, of course, Friedman is mainly concerned with social and economic scientists) prefer to work with the government to create models and implement them in practice.
2) Big Business
Although Figure 1 depicts another one of the three circles as the private market, much of it again consists of large, oligopolistic companies that work closely with the government, lobbying for subsidies and tax exemptions, and asking for bailouts when things go wrong. Of course, if markets were truly free and efficient, this would not be possible. There is also a lot of politics when it comes to the big companies. Think of ASML not being allowed to export to China, or the European car industry asking for high import tariffs on Chinese cars.
3) Big government
Friedman forgot to mention three other groups in the aforementioned video. First, the bureaucracy, which includes policymakers and supranational organisations. Bureaucrats are constantly coming up with new rules and ideas to direct and plan society. Moreover, it is common knowledge that the bureaucracy maintains itself, or even tries to expand. Max Weber, who did a lot of study on bureaucracy, once spoke of the ‘golden cage’ of bureaucracy. It is also called the fourth power.
4) Central banks
Central banks intervene in free markets in various ways. A salient example is buying up government bonds to keep interest rates down for the governments concerned, so that they don't run into payment problems, they can keep going into debt, thus stimulating growth and inflation. Similarly, inflation policy is actually a guiding message to markets: keep investing and spending. The same goes for interest rates. Central bankers think that by turning the interest rate knobs, they can stage economic growth.
5) Artists, especially writers
Of course, not all artists (and writers) are critics of free markets, but the lion's share are, with Ilja Leonard Pfeijffer now being the most prominent exponent. There is no single clear cause behind this, but many writers have an eye for social ills. They like to write about those issues, and they naturally like to be read. Many writers have romantic and anti-materialist ideals. But their economic analysis of the system is usually wrong.
System development
Because of the many problems that exist in society today, there is much discussion about ‘systemic change’. Just apart from what name we put on a system (always a fun discussion), we cannot just change a system (except in a revolution). A system changes through action and (counter)reaction, with human nature always playing the leading role. A system that goes against our nature, like communism, is not long-lived anyway, no matter how much some would like to plan such a system.
This article contains a personal opinion of Harry Geels