the free market: how free is it? can we free it? how?
TRANSCRIPT
State of Europe Forum, Amsterdam, 9 May 2016 1
The Free Market: How “Free” is it? Can we Free it?
How?
Professor Prabhu [email protected]
State of Europe Forum, Amsterdam, 9 May 2016 2
Initial considerations
The dominance of doublespeak and buzzwords today should lead us to suspicion of *all* words that are undefined
There needs to be at least some joint understanding of key words before plunging into any discussion
State of Europe Forum, Amsterdam, 9 May 2016 3
A potted history of markets:• In ancient times, markets were not so important, but were, in principle, in the
control of the merchant class: “merchant markets”• Following the industrial revolution, we had “capitalist markets” (capital plus
technology)• From the Victorian era, the worst excesses of “capitalist markets” led to the rise of
“regulated markets” • Some countries went in the direction of “state-controlled markets” (Russia, China
… North Korea)• From the 1980s, “regulated markets” started being “de-regulated”, giving rise to
“global markets” • Since 2007 or so, as nationalisms return, we have entered the era of
“deglobalising markets”.
State of Europe Forum, Amsterdam, 9 May 2016 4
Don’t markets need to be seen in their context?
• How important is the market to a society?• What role does technology play?• How do we deal with market manipulation, oligopolies
and monopolies?• What do we do to ensure stable and fair markets? • How do we deal with the consequences of market
processes (environmental, economic, social, political)?
Can the market ever be “completely free”? Even the jungle isn’t “completely free”!
State of Europe Forum, Amsterdam, 9 May 2016 5
So, what do I mean by a “free market”• Enables the rise of talent from any background:• Infrastructure• Public education
• Has free competition within minimum necessary rules: • Environment• Health• Safety• Currency stability• Equal application of the law to all• Care for the physically, emotionally or mentally disadvantaged• Differential expectations and punishments.
State of Europe Forum, Amsterdam, 9 May 2016 6
Three key ways the Market isn’t free
•Perverse Subsidies•Cronyism•Debasing the currency
State of Europe Forum, Amsterdam, 9 May 2016 7
“Perverse Subsidies”:Demonstrably & significantly damaging - economically - environmentally - socially
State of Europe Forum, Amsterdam, 9 May 2016 8
Subsidies: perverse?• Divert resources from higher priorities (education, environment, health,
infrastructure)• Encourage or enable environmental degradation due to over-
exploitation of natural resources, loss of landscape, pollution…• Benefit the few at the expense of the many• Leave consumer behaviour increasingly out of touch with reality• Lower global demand (& therefore market prices) for certain kinds of
products• Reduce pressure on businesses to become more efficient• Undermine investment decisions.
State of Europe Forum, Amsterdam, 9 May 2016 9
Why are cuts in perverse subsidies opposed?
• Disadvantages those who will lose the subsidies• increases unemployment• Lessens domestic competitiveness• Reduces trading opportunities as costs rise for customersand • threatens voter support for the party in power.
State of Europe Forum, Amsterdam, 9 May 2016 10
But are those only excuses?Subsidies go to groups that support a party that gets into power
- as a “reward” for having put the party in power
This vicious cycle subverts leaders’ responsibility for the rest of society
State of Europe Forum, Amsterdam, 9 May 2016 11
Perverse Subsidies• $5.3 Trillion a year ($10m every minute) for fossil fuels alone• The six most “perversely subsidised” sectors : agriculture, fossil fuels,
road transportation, water, fisheries and forestry
• The USA accounts for “only” 21 percent of perverse subsidies globally• OECD countries account for two thirds of all subsidies!
• https://theintercept.com/2016/04/29/banks-assert-constitutional-right-to-billions-in-subsidies
State of Europe Forum, Amsterdam, 9 May 2016 12
The good news is…• Current economic conditions and political fashions are inclining
governments to reduce expenditure • Unilateral commitments have been made by several countries
(Bangladesh, New Zealand, Russia…)• Multilateral commitments are now being made more often and more
comprehensively – e.g. the MDGs, the Sustainable Development Goals…
State of Europe Forum, Amsterdam, 9 May 2016 13
Three key ways the Market isn’t free
•Perverse Subsidies •Cronyism•Debasing the currency
State of Europe Forum, Amsterdam, 9 May 2016 14
Cronyism: what is it?• Unfair practice by a powerful person (such as a politician or company
CEO) of giving jobs and other favours to friends: contrary in practice and principle to meritocracy • Fewer opportunities for the majority of the population• Impeded motivation• Inefficiencies in investment• Lowers the value that you get for the price you pay in the market• Poorer qualifications, on the part of anyone responsible, lead to
poorer quality of public projects• Reduced choice and competition in the marketplace.
State of Europe Forum, Amsterdam, 9 May 2016 15
Facts?• “Cronyism is a way of life for many business and political leaders, including plenty on the
conservative side, despite (their) claims of valuing economic liberty” - Samuel Gregg, 24 May 2016 HTTP://WWW.CRISISMAGAZINE.COM/2016/CRONY-CAPITALISM-INEFFICIENT-UNJUST-AND-CORRUPTING
• In one of the most transparent and efficient countries in the world, the USA, the 2016 annual report of its Government Accountability Office (GAO), released on April 13, pointed out that, in its first five annual reports (2011-2015), it presented over 200 areas and 544 actions for Congress or executive branch agencies to reduce, eliminate, or better manage fragmentation, which could result in savings of “tens of billions of dollars”.
• For the Pentagon alone, the GAO made 152 major proposals for policy changes and improvements to avoid waste from duplication: “The Defense Department has so far implemented only 37.5 percent of these”, said the GAO.
• http://www.gao.gov/duplication/action_tracker/all_areas
State of Europe Forum, Amsterdam, 9 May 2016 16
Three key ways the Market isn’t free
•Perverse Subsidies •Cronyism•Debasing the currency
State of Europe Forum, Amsterdam, 9 May 2016 17
Debasement = lowering the value • Well studied historically in connection with e.g. gold or silver coins: a coin
was “debased” if the quantity of gold, silver, copper or nickel was reduced from what it was supposed to have, resulting in a mismatch between its stated value and its real value• Reduction of the silver or gold content of a coin meant that a government
could make more coins out of the same amount of gold/ silver• The resulting over-supply of coin, while the amount of actual goods and
services in a country remains relatively static, results in inflation• The purchasing power of the inhabitants’ currency is reduced, while the
government pay off its debts in the debased currency.
State of Europe Forum, Amsterdam, 9 May 2016 18
Why debase a currency?An easy way to profit at the expense of inhabitants!
Nowadays, since at best mere paper is involved (increasingly often, only digits on a computer screen), infinite debasement is possible, provided
businesses and citizenry don’t revolt
And the inhabitants are “pacified” by double-speak such as “rise in the value of your house” (when in fact it means a drop in the purchasing
power of the currency).
State of Europe Forum, Amsterdam, 9 May 2016 19
State of Europe Forum, Amsterdam, 9 May 2016 20
State of Europe Forum, Amsterdam, 9 May 2016 21
Moral, ethical, psychological and spiritual connections?
Michael Hout & Claude S. Fischer, “Explaining Why More Americans Have No Religious Preference: Political Backlash and Generational Succession, 1987-2012” Sociological Science, October 13, 2014
State of Europe Forum, Amsterdam, 9 May 2016 22
Three key ways the Market isn’t free
•Perverse Subsidies •Cronyism•Debasing the currency
State of Europe Forum, Amsterdam, 9 May 2016 23
For The Free Market to survive Q-BRAIN:• Eliminate perverse subsidies, cronyism & currency debasement• Establish a “global level playing field”:• Abolish tax havens• Close tax loopholes• Set corporate tax at a realistic level• Restore taxes for the richest part of the population• Embed “workfare” rather than “welfare”• (I have proposed a more comprehensive set of reforms– let
me know if you’d like to see them)
State of Europe Forum, Amsterdam, 9 May 2016 24
More GOOD NEWS:
• More and more people see that all this is realistic• So public pressure is building up for each of these things
State of Europe Forum, Amsterdam, 9 May 2016 25
The Free Market: How “Free” is it? Can we Free it?
How?
Professor Prabhu [email protected]