Markets are often described by economists in an almost messianic way- as if they alone will solve all of the world's problems. Now, it is worth noting that markets do a great many things well- they can be great democratisers (in the sense that they in principle allow for a levelling of the playing field), they are often better at distributing resources than a centralised economic instruments and they are more free of rent-seeking and political influence than command economies. However, something they certainly are not is natural- they are like anything else institutions, Douglass North's 'rules of the game' or 'humanly devised constraints on action'.
Indeed, as Polanyi claimed what has really happened is a Market Society (for anyone interested in a more in-depth look at this idea I recommend Polanyi's The Great Transformation) has been created: a combination of market exchanges, industrial production and hedonistic consumption. In this blog post, I will briefly chart how this is different from the mainstream economic account of what market mechanisms are, before briefly posing some conclusions on how this might affect modern development policy (looking particularly at the experience of Russia in the early 90s). The key difference I posit is that along Polanyi's lines, markets are embedded in the social and cultural relations of a society, rather than existing as a separate mechanism alongside them as neoclassical economics assumes (actually neoclassical economists mostly just seem very disquieted whenever the word 'culture' is mentioned).
'The Invisible Hand': Modern Market Exchanges
Markets used to be largely places where often subsistence-based farmers, tradespeople or originally small-scale settlers or tribes would get items they needed but didn't have or couldn't produce from other people. They were often ad hoc, sometimes based on barter and very much not interconnected- prohibitions both religious and social against profit-making ('usury') were followed to various degrees. Modern capitalism changed all this. Modern market
exchange is predicated on the idea that commodities have value because of the
relationship between things, especially in terms of the translation into a
monetary value. Trade is predicated on the substitutability of unlike goods and
each participant having a different scale of values in order to produce mutually
beneficial trades. Markets have to be
embedded and naturalised within society, that is markets must have
“institutedness”. As Polanyi
observes, ‘free markets’ are instituted processes that must be articulated
through social, legal and political strategies.
This system of exchange is predicated on social
acceptance, which is why Western development projects often include help
setting up market economies, as a ‘charitable’ venture. Therefore, when
confidence is lost in markets they cease to function and as a test of this hypothesis, the exchange system should
also fail. This occurred amongst the Nentsy people of Northern Siberia when the
bank accounts the Soviets had given them became valueless due to the
depreciation in the value of the ruble in the early 1990s. As predicted, the
herders switched from buying consumer goods off the Russians back to solely
reindeer herding.
Markets did not become successful because barter inherently transformed into modern capitalism- indeed as Polanyi notes, the really curious thing about laissez-faire capitalism is how planned it was- it needed helping although through establishing private property rights, creating and then dismantling large monopolies (like the East India Trading Company) and a change in attitudes to wealth accumulation, which brings us to consumption.
'J'adore, Dior': Consumption Patterns and the Modern Corporation
Value
in cultural terms is defined by how people expect the world and people in it to
behave and how they judge that behaviour. The value of wealth accumulation has
changed from the medieval view of public virtue arising from private virtue to
the formal economists’ idea that public virtue can arise from private vice.
Associated with this has been a popularisation of modern hedonism,
characterized by the creation of cultural value in the self-conscious seeking
of personal pleasure. These concepts have spread widely to the point where
self-interest is taken for granted in most of modern Western society and
through global media, much of the world. Consumer goods are in Western society
associated with 'commodity aesthetics' in which people ascribe value solely on
the basis of design or promotion. Companies have sought to create a
'hyperreality' (Baudrillard) or an aesthetic coating of the world that seeks to
use images to generate a market-based society. Companies have also successfully
in many cases proselytised to the developing world, for example a Power Rice Ad
that was run in Papua New Guinea that was synchronised to the soundtrack
recording of “Power to the People!” and featured a muscular man lifting the
rice at a construction site. Foster also charts the rise of beauty contests and
other competitions that serve to reinforce that cultural capital is to be
gained through individual choices (see Materialising the Nation: Commodities,
Consumption and Media in Papua New Guinea by Robert Foster). This is also related
to what Jonathan Friedman calls homo consumens, "whose fragmented identity
is constantly rearranged by the winds of fashion". But how is this all
made?
'Work must not Cease’: Mass-Production'
Production is driven by the demands of the market,
with an emphasis on creating surplus to trade with others and where the value
is determined by what others will exchange for them. Perhaps the defining
feature of the capitalist mode is its tendency to reproduce itself on an
increasing scale. Production is also changed from previous reciprocal or household modes of production, because who makes the product is now irrelevant- i.e. all goods can at least hypothetically have their value translated into a monetary one (this is quite different to say the Kubo system where who gave you the pig is more important than the pig's 'worth' to you). Capitalism also means that production is no longer autonomous- capitalist production is the most interlinked of any economic system. Finally, high fidelity is ensured by industrialised
production technologies, which can produce millions of copies of the same good (this is a key difference from say craft-based economies).
Moving from the Positive to the Normative: Some Policy Ideas
All of the claims I have made so far are what economists call 'positive', that is I've tried as hard as possible to make factual claims about what is not what should be (by hedonism for example, I do not mean a Catholicesque value judgment, I just mean the pursuit of individual pleasure). Now I will try and draw some tentative policy conclusions from what I've written.
The first is that we should not expect markets in the third world to just spontaneously exist- governance needs to get better before the 3rd world can open up to trade more fully and before those countries can actually prosper. In particular, Chicago School style 'shock therapy' is an appalling idea because weak economies with markets that are barely embedded in society will just collapse- witness Russia in the early 1990s. There is a role in international NGOs and other aid providers to tie further aid to institutional improvements- also Western governments should help here rather than just prescribing more of the 'Washington Consensus'.
The second is that the continued survival of markets means that institutions in every country have to be kept strong- there is a role for government policy in other words to stop the collapse in social relations that Polanyi discusses (though I obviously disagree with Polanyi's solution, which is to transition to either socialism or economic democracy).
The last is that while international finance and other forms of globalisation are breaking down national boundaries, there will be a continued role for nation states in the future to regulate these issues and that they will require a truly international response.
I would also make the empirical observation that economics needs to study these issues more- it should not be left to sociologists and anthropologists to fix up huge gaps in modern economic theory.
--
Dan Gibbons is a third year Bachelor of Commerce (Economics) student at the University of Melbourne. He has a forthcoming publication in Intergraph: A Journal of Dialogic Anthropology (about memory and nationalism) and is currently submitting papers on the rise of modern consumerism, the role of criminology theory in literary criticism and the institutional theory of nationalism. Dan is a keen debater and public speaker.
No comments:
Post a Comment