tag:theconversation.com,2011:/id/topics/free-markets-8281/articlesFree markets – The Conversation2024-03-07T13:03:42Ztag:theconversation.com,2011:article/2247122024-03-07T13:03:42Z2024-03-07T13:03:42ZWhy Israel’s economy is resilient in spite of the war<figure><img src="https://images.theconversation.com/files/580093/original/file-20240306-18-g3idi5.jpg?ixlib=rb-1.1.0&rect=648%2C0%2C2356%2C2005&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/back-shot-several-soldiers-israel-army-1423050641">Melnikov Dmitriy/Shutterstock</a></span></figcaption></figure><p>Israel’s war in Gaza and more limited conflict with Hezbollah on its northern border with Lebanon is taking a toll on the Israeli economy. </p>
<p>In the final quarter of 2023, Israel’s gross domestic product (GDP) – a measure of a country’s economic health – <a href="https://www.cbs.gov.il/en/publications/Pages/2024/Monthly-Bulletin-of-Statistics-February-2024.aspx">shrank by almost 20%</a>. Consumption dropped by 27% and investment by 70%.</p>
<p>It’s important to note that these are annualised figures relative to the same period a year ago. The 5.2% drop in GDP from the third quarter was substantial, but it is likely to be a temporary setback unless the war with Hezbollah intensifies.</p>
<p>The outbreak of war disrupted <a href="https://www.boi.org.il/en/communication-and-publications/press-releases/a09-11-23/">around 18%</a> of Israel’s workforce. In October, 250,000 civilians fled or were evacuated from border communities. Meanwhile, around 4% of the workforce – some 300,000 people – were called up as reservists as Israel mobilised for its military offensive.</p>
<p>Over the next few years, the war will cost Israel an estimated <a href="https://boi.org.il/media/ruuby3mw/%D7%9E%D7%A6%D7%92%D7%AA-%D7%94%D7%A0%D7%92%D7%99%D7%93-%D7%9C%D7%95%D7%95%D7%A2%D7%93%D7%AA-%D7%94%D7%9B%D7%A1%D7%A4%D7%99%D7%9D-22124.pdf">255 billion shekels</a> (£56.6 billion) due to reduced economic activity and increased expenses. But the <a href="https://www.moodys.com/research/Moodys-downgrades-Israels-ratings-to-A2-changes-outlook-to-negative-Rating-Action--PR_484801">projected rise</a> in national debt from 60% to 67% of GDP by 2025 is manageable, as is the plan to raise annual military spending from 4% of GDP to <a href="https://boi.org.il/media/ruuby3mw/%D7%9E%D7%A6%D7%92%D7%AA-%D7%94%D7%A0%D7%92%D7%99%D7%93-%D7%9C%D7%95%D7%95%D7%A2%D7%93%D7%AA-%D7%94%D7%9B%D7%A1%D7%A4%D7%99%D7%9D-22124.pdf">6%</a> or <a href="https://www.calcalist.co.il/local_news/article/s15g7mett">7%</a> by the end of the decade. </p>
<p>Israel entered the war with a relatively low national debt and foreign currency reserves equivalent to about 40% of annual GDP. Its population is young and still growing, and <a href="https://www.cbs.gov.il/he/publications/DocLib/2022/def20_1857/h_print.pdf">data</a> reveals that Israel has surpassed current military spending levels before. Between 1967 and 1972, military spending averaged 20.3% of GDP, rising to 28.7% from 1973 to 1975 before stabilising at 20.8% between 1976 and 1985.</p>
<p>The years following the Yom Kippur war in 1973 and through the first Lebanon war (1982–85) are often referred to as “lost years” for Israel’s economy. Per-capita GDP growth averaged <a href="https://www.rug.nl/ggdc/productivity/pwt/?lang=en">4.8%</a> in the 12 years before this period; over the following 12 years it dropped to just 0.8%. Inflation gradually rose, <a href="https://www.globes.co.il/finance/indexprice/inflation.asp?Lang=HE">peaking at 445%</a> during 1984.</p>
<p>So the question is not if Israel can weather the current storm, but whether the burden of higher military spending will be offset by budget cuts elsewhere to ensure economic growth resumes and public debt returns to a sustainable trajectory. </p>
<p>So far, Benjamin Netanyahu, Israel’s prime minister, and other members of his coalition have resisted <a href="https://economists-for-israeli-democracy.com/">advice</a> from economists to change the government’s spending priorities. They have done so for fear of upsetting the small but influential constituencies whose votes keep them in power.</p>
<figure class="align-center ">
<img alt="Benjamin Netanyahu speaking in front of an Israel flag with his right hand outstretched." src="https://images.theconversation.com/files/580092/original/file-20240306-20-xvroza.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/580092/original/file-20240306-20-xvroza.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=339&fit=crop&dpr=1 600w, https://images.theconversation.com/files/580092/original/file-20240306-20-xvroza.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=339&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/580092/original/file-20240306-20-xvroza.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=339&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/580092/original/file-20240306-20-xvroza.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=427&fit=crop&dpr=1 754w, https://images.theconversation.com/files/580092/original/file-20240306-20-xvroza.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=427&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/580092/original/file-20240306-20-xvroza.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=427&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Benjamin Netanyahu speaking at a meeting in Berlin, Germany, in March 2023.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/berlin-germany-20230316-prime-minister-benjamin-2276731307">photocosmos1/Shutterstock</a></span>
</figcaption>
</figure>
<h2>Political opportunism</h2>
<p>Netanyahu has demonstrated a good grasp of market economics. As finance minister between 2003 and 2005, Netanyahu implemented <a href="https://www.nevo.co.il/FilesFolderPermalink.aspx?b=books&r=%D7%9B%D7%AA%D7%91%D7%99+%D7%A2%D7%AA%5C%D7%9B%D7%AA%D7%91%D7%99+%D7%A2%D7%AA%5C%D7%9E%D7%A9%D7%A4%D7%98+%D7%94%D7%A2%D7%91%D7%95%D7%93%D7%94%5C%D7%9B%D7%A8%D7%9A+%D7%99">sweeping reforms</a> that lowered tax rates, <a href="https://muse.jhu.edu/article/543634">privatised state companies</a> and raised the state pension age. He also used his tenure to curtail the country’s bloated benefits system and introduce requirements for job training.</p>
<p>Yet since the start of Netanyahu’s second term as prime minister in 2009 (the first was 1996–99), many of these reforms have been <a href="https://main.knesset.gov.il/mk/government/documents/addCoalition2009_2.pdf">scaled back or eliminated</a>, particularly the cuts to the benefits system. This benefits system disproportionately advantages the ultra-Orthodox Haredi community, whose parties form part of Netanyahu’s governing coalition.</p>
<p>Netanyahu was once again elected as prime minister in November 2022. Though a proponent of a limited role for the state, his new government included a record 34 different ministries. This was to satisfy the appetite for patronage and ministerial salaries among the different coalition partners as well as factions within his own Likud party. </p>
<p>To secure the continued support of ultra-Orthodox parties he also promised unprecedented <a href="https://www.idi.org.il/articles/49642">levels of funding</a> for religious schools and seminaries. In seminaries, grown men spend their lives studying religious texts at the public’s expense and are exempt from military service. Despite the need to fund the war and for more young men in uniform, Netanyahu and Bezalel Smotrich, the finance minister, have <a href="https://www.calcalist.co.il/local_news/article/bkerxsacp">resisted</a> nearly all suggestions that these budget items be reduced.</p>
<p>Here we have a case study where political opportunism easily defeats ideology. We know what Netanyahu believes and what he understands about good economic policy, and we can isolate these from what he is willing to do to remain in office. </p>
<p>Will he choose to defray some of the costs the war will impose on the budget by eliminating wasteful spending on useless ministries? Or will he introduce policies that grow the economy by incentivising higher labour-force participation among the ultra-Orthodox community? The plan for the moment is to borrow more.</p>
<figure class="align-center ">
<img alt="Two ultra-Orthodox men holding signs written in hebrew." src="https://images.theconversation.com/files/580090/original/file-20240306-18-4nzv1y.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/580090/original/file-20240306-18-4nzv1y.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/580090/original/file-20240306-18-4nzv1y.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/580090/original/file-20240306-18-4nzv1y.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/580090/original/file-20240306-18-4nzv1y.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/580090/original/file-20240306-18-4nzv1y.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/580090/original/file-20240306-18-4nzv1y.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Ultra-Orthodox men protesting for the release of a religious youth who was jailed for refusing to serve in the military in 2017.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/safed-israel-oct-19-2017-ultra-1026922030">David Cohen 156/Shutterstock</a></span>
</figcaption>
</figure>
<h2>Strong civil society</h2>
<p>We may also overestimate the role politicians and governments play in ensuring a country’s success. Since its founding in 1948, Israel’s electoral system of proportional representation has yielded weak, unstable coalitions.</p>
<p>Historically, the Likud party has strongly supported the independence of the country’s judiciary. But after the last election, Netanyahu’s government introduced <a href="https://www.bbc.co.uk/news/world-middle-east-65086871">new legislation</a> that, among other things, would have given the Knesset (parliament) the power to override Supreme Court decisions with a simple majority vote. </p>
<p>Had these changes been implemented they would have further magnified the worst properties of the country’s dysfunctional (unwritten) constitution. People do not invest money in countries where court decisions can be overturned by politicians and property rights are not secure.</p>
<p>Yet, despite the weaknesses of its government institutions, Israel has absorbed millions of poor refugees from every corner of the Earth, has fought back when attacked and has defeated far larger neighbours over its 75-year history. It has done so all while transforming itself from an impoverished backwater to a first-world economy and a centre of high-tech innovation. </p>
<p>In the first nine months of 2023, hundreds of thousands of Israelis <a href="https://www.theguardian.com/world/2023/sep/12/israel-protests-judicial-curbs-supreme-court-challenge">demonstrated</a> in the streets to defend the rule of law and the independence of the country’s judiciary. Many of those same people rushed to join their reserve units on October 7 to defend the country’s borders. Others, acting without any government direction, <a href="https://www.ynetnews.com/magazine/article/bjd1lrmlp">organised relief</a> for the survivors and displaced while ministers dithered or disappeared from view.</p>
<p>Countries with strong civil societies and highly engaged populations survive and even prosper not because of their political leaders, but despite them.</p><img src="https://counter.theconversation.com/content/224712/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michael Ben-Gad does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>War is taking a toll on Israel’s economy.Michael Ben-Gad, Professor of Economics, City, University of LondonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2077982023-06-15T13:32:38Z2023-06-15T13:32:38ZWhat the right gets wrong about Adam Smith<figure><img src="https://images.theconversation.com/files/532171/original/file-20230615-29-mql66x.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">John Kay, 1790. </span> <span class="attribution"><a class="source" href="https://www.wikiwand.com/en/Adam_Smith#Media/File:AdamSmith1790b.jpg">Wikiwand</a></span></figcaption></figure><p>What to make of Adam Smith? You might have thought we would have straightened this out, given that he only ever wrote two books and it’s been 300 years since he was born. But no. Everyone wants to claim the Scottish philosopher and economist as one of their own. With the exception of Jesus, it’s hard to think of anyone who attracts such radically different interpretations. </p>
<p>Part of the problem is that we actually know very little about the man. Smith oversaw the burning of all his unpublished writings as he lay on his death bed – a common practice at the time, but not much help in settling endless arguments. </p>
<p>What we know is that he was born in the town of Kirkcaldy on the east coast of Scotland. His father was a judge who died just before he was born. Smith seems to have been a very scholarly child, rarely seen without a book about his person. </p>
<p>One early experience that seems to have affected him concerned the town market. Certain landowners were exempt from Kirkcaldy’s bridge tolls and market stall charges due to the town’s status as a royal burgh. This gave them a competitive advantage over their competitors, which <a href="https://freakonomics.com/podcast/in-search-of-the-real-adam-smith/">did not</a> sit well with the young Smith. </p>
<p>He left his mother at the age of 14 to study moral philosophy at the University of Glasgow, before completing his postgraduate studies in metaphysics at Balliol College Oxford. Thereafter he went on to spend his life studying, teaching and writing in the fields of philosophy, theology, astronomy, ethics, jurisprudence and political economy. Most of his career was spent as an academic in Edinburgh and Glasgow, though there were also stints as a private tutor in France and London. </p>
<h2>The Wealth of Nations</h2>
<p>The two books that Smith published in his lifetime are The Theory of Moral Sentiments (1759) and his more widely known, An Enquiry into the Nature and Causes of the Wealth of Nations (1776). The latter, a rambling 700-page text published over two volumes, was 17 years in the making. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/532203/original/file-20230615-29-dw7p4b.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Original edition of Adam Smith's Wealth of Nations" src="https://images.theconversation.com/files/532203/original/file-20230615-29-dw7p4b.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/532203/original/file-20230615-29-dw7p4b.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=512&fit=crop&dpr=1 600w, https://images.theconversation.com/files/532203/original/file-20230615-29-dw7p4b.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=512&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/532203/original/file-20230615-29-dw7p4b.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=512&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/532203/original/file-20230615-29-dw7p4b.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=643&fit=crop&dpr=1 754w, https://images.theconversation.com/files/532203/original/file-20230615-29-dw7p4b.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=643&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/532203/original/file-20230615-29-dw7p4b.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=643&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">What it’s all about.</span>
</figcaption>
</figure>
<p>The dominant economic ideology of the time was known as <a href="https://www.investopedia.com/terms/m/mercantilism.asp">mercantilism</a>. It viewed economic value simply in terms of the amount of gold that a country had to buy the goods it needs. It gave little consideration to how goods were produced – either the physical inputs or the human motivation. </p>
<p>But for Smith, motivation was at the heart of economic behaviour. He saw it as an all-purpose lubricant that delivers mutual benefit for all: </p>
<blockquote>
<p>It is not from the benevolence of the butcher, the brewer or the baker, that we expect our dinner, but from their regard to their own interest.</p>
</blockquote>
<p>Smith’s observations about how the division of labour can be organised to increase productivity remains one of his most enduring contributions to economics. Improving productivity is still seen as the holy grail for countries getting richer. Larry Fink, head of investment giant BlackRock, has only just <a href="https://www.ft.com/content/f36e2b3b-9bb0-481d-b682-4ae882b17a11">been arguing</a> that artificial intelligence could improve productivity, for instance. </p>
<h2>The battleground</h2>
<p>The Wealth of Nations is an eclectic text – even an <a href="https://www.linkedin.com/pulse/adam-smith-really-right-winger-stephen-dubner/?trk=pulse-article_more-articles_related-content-card">“impenetrable” one</a>, according to the director of the Adam Smith Institute. Smith argues that slavery and feudalism are bad and that economic growth and getting people out of poverty are good. </p>
<p>He thinks high wages and low profits are good. He also warns against things like cronyism, corporate corruption of politics, imperialism, inequality and the exploitation of workers. In observations about the British East India Company, which was the Amazon of its day and then some, Smith even warned about companies becoming too big to fail.</p>
<p>Those on the right of the debate often cite Smith’s “invisible hand” phrase from the Wealth of Nations in support of their worldview. Borrowed from Shakespeare’s Macbeth, the phrase actually appears only once in the whole text. It is a metaphor for how a “free” market magically brings buyers and sellers together without any need for government involvement. </p>
<p>In more recent times, “invisible hand” has come to mean something slightly different. Chicago School free market advocates like <a href="https://core.ac.uk/download/pdf/6755389.pdf">Milton Friedman</a> and <a href="https://link.springer.com/book/10.1057/978-1-137-56815-1">George Stigler</a> viewed it as a metaphor for prices, which they saw as signalling what producers wanted to produce and buyers wanted to buy. Any interference from government in terms of price controls or regulations would distort this mechanism and should therefore be avoided.</p>
<p>Ronald Reagan and Margaret Thatcher were disciples of this way of thinking. In a 1988 speech encouraging his people to be thankful for the prosperity that comes from free trade, <a href="https://www.reaganlibrary.gov/archives/speech/radio-address-nation-canadian-elections-and-free-trade">President Reagan argued</a> that the Wealth of Nations “exposed for all time the folly of protectionism”. </p>
<p>Yet those on the left also find plenty in Smith that resonates with them. They often cite his concern for the poor in the Theory of Moral Sentiments: </p>
<blockquote>
<p>This disposition to admire, and almost to worship, the rich and the powerful, and to despise, or, at least, to neglect persons of poor and mean condition, though necessary both to establish and to maintain the distinction of ranks and the order of society, is, at the same time, the great and most universal cause of the corruption of our moral sentiments.</p>
</blockquote>
<p>In 2013, President Barack Obama cited Smith in a speech to support raising the US minimum wage: </p>
<blockquote>
<p>They who feed, clothe and lodge the whole body of the people should have such a share of the produce of their own labor as to be themselves tolerably well fed, clothed and lodged.</p>
</blockquote>
<h2>States and abuses</h2>
<p>So how to square this circle? The truth is that Smith’s writing has enough ideas and inconsistencies to allow for all sides to cherry pick references as required. But one argument I find compelling, which has been <a href="https://freakonomics.com/podcast/was-adam-smith-really-a-right-winger/">put forward</a> by the economist Mariana Mazzucato, is that many of those who champion laissez-faire policies misinterpret Smith’s notion of a free market. </p>
<p>This is linked to the fact that Smith was writing at a time when the British East India Company was responsible for a staggering 50% of world trade. It operated under a royal charter conferring a monopoly of English trade in the whole of Asia and the Pacific. It even had its own private army. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/532204/original/file-20230615-25-cqkj2.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Benjamin West painting 1765 about the British East India taking tax control over Bengal" src="https://images.theconversation.com/files/532204/original/file-20230615-25-cqkj2.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/532204/original/file-20230615-25-cqkj2.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=424&fit=crop&dpr=1 600w, https://images.theconversation.com/files/532204/original/file-20230615-25-cqkj2.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=424&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/532204/original/file-20230615-25-cqkj2.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=424&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/532204/original/file-20230615-25-cqkj2.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=533&fit=crop&dpr=1 754w, https://images.theconversation.com/files/532204/original/file-20230615-25-cqkj2.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=533&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/532204/original/file-20230615-25-cqkj2.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=533&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Mughal Emperor Shah Alam conveying tax-collecting rights for Bengal, Bihar and Orissa to the British East India Company, Benjamin West 1765.</span>
<span class="attribution"><a class="source" href="https://commons.wikimedia.org/wiki/File:Shah_%27Alam_conveying_the_grant_of_the_Diwani_to_Lord_Clive.jpg#/media/File:Shah_'Alam_conveying_the_grant_of_the_Diwani_to_Lord_Clive.jpg">Wikimeda</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>Smith was presenting an alternative vision for the UK economy in which such state-licensed monopolies were replaced by firms competing against one another in a “free” market. Innovation and competition would provide employment, keep prices down and help reduce the appalling levels of urban poverty of the time. This was capitalism. And ultimately Smith was proved correct.</p>
<p>But Mazzucato argues that when Smith talked about the free market, he didn’t mean free from the state, so much as free from rent and free from extraction of value from the system. In today’s world, the equivalent example of such feudal extraction is arguably global tech firms like Amazon, Apple and Meta playing nations off against one another to minimise their regulations and tax liabilities. </p>
<p>This doesn’t sound like the sort of “free” market that Smith envisaged. He would probably be cheering on the <a href="https://www.cnbc.com/2023/06/14/eu-charges-google-with-anti-competitive-practices-in-ad-tech-business.html">EU’s anti-trust case</a> against Google, for instance. Those who believe that Smith saw no role for the state in managing the economy ought to reflect on how spent his final years – working as a tax collector.</p><img src="https://counter.theconversation.com/content/207798/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Conor O'Kane does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Everyone wants to claim the economic thinker as their own.Conor O'Kane, Senior Lecturer in Economics, Bournemouth UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2051542023-06-08T10:27:04Z2023-06-08T10:27:04ZFive reasons Adam Smith remains Britain’s most important economist, 300 years on<p>June 5 2023 marks the 300th anniversary of the birth of Adam Smith, the 18th-century British economist widely hailed as the father of modern economics. </p>
<p>Born in Kirkcaldy, on the east coast of Scotland, Smith studied at the University of Glasgow and at Balliol College, Oxford (which he didn’t think highly of), before becoming a professor of moral philosophy at Glasgow. He was a quiet, unassuming man, only travelling when he accompanied a student on a tour of Europe in the 1760s. He died in Edinburgh in 1790. </p>
<figure class="align-right ">
<img alt="A historical plaque." src="https://images.theconversation.com/files/530594/original/file-20230607-25-yfxs0p.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/530594/original/file-20230607-25-yfxs0p.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=782&fit=crop&dpr=1 600w, https://images.theconversation.com/files/530594/original/file-20230607-25-yfxs0p.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=782&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/530594/original/file-20230607-25-yfxs0p.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=782&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/530594/original/file-20230607-25-yfxs0p.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=983&fit=crop&dpr=1 754w, https://images.theconversation.com/files/530594/original/file-20230607-25-yfxs0p.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=983&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/530594/original/file-20230607-25-yfxs0p.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=983&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">A plaque on Kirkcaldy High Street.</span>
<span class="attribution"><a class="source" href="https://upload.wikimedia.org/wikipedia/commons/c/c0/Kirkcaldy_High_Street_Adam_Smith_Plaque.png">James Eaton-Lee</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span>
</figcaption>
</figure>
<p>Despite living an uneventful life, Smith is considered a central figure in the <a href="https://theconversation.com/what-enlightenment-philosophers-would-have-made-of-donald-trump-and-the-state-of-american-democracy-56098">Scottish Enlightenment</a>. His book <a href="https://theconversation.com/the-myth-that-holds-adam-smiths-wealth-of-nations-together-35674">Wealth of Nations</a>, published in 1776, remains one of the most influential books ever written – second only to Karl Marx’s Das Kapital as the <a href="https://blogs.lse.ac.uk/impactofsocialsciences/2016/05/12/what-are-the-most-cited-publications-in-the-social-sciences-according-to-google-scholar/">most cited work of classical economics of all time</a>. </p>
<p>As my research <a href="https://www.cambridge.org/core/books/scottish-enlightenment-and-the-french-revolution/57C02044A2031C54E6D17DFC5F943CAB">shows</a>, Smith is much more than the “father of economics”. He was a <a href="https://www.libertyfund.org/books/essays-on-philosophical-subjects/">philosopher</a>, a <a href="https://muse.jhu.edu/article/495243/pdf">historian</a>, and a <a href="https://www.bloomsbury.com/in/cultural-history-of-democracy-in-the-age-of-enlightenment-9781350272859/">political theorist</a>. His life work was dedicated to working out the moral, social and political consequences – both good and bad – of the emerging capitalist and industrial economy in late 18th-century Britain. Here are five reasons why he remains Britain’s most important economist. </p>
<figure class="align-center ">
<img alt="A historical portrait painting of a man." src="https://images.theconversation.com/files/530593/original/file-20230607-17-nsx4od.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/530593/original/file-20230607-17-nsx4od.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=731&fit=crop&dpr=1 600w, https://images.theconversation.com/files/530593/original/file-20230607-17-nsx4od.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=731&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/530593/original/file-20230607-17-nsx4od.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=731&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/530593/original/file-20230607-17-nsx4od.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=919&fit=crop&dpr=1 754w, https://images.theconversation.com/files/530593/original/file-20230607-17-nsx4od.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=919&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/530593/original/file-20230607-17-nsx4od.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=919&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The Muir Portrait of Adam Smith, c 1800, artist unknown.</span>
<span class="attribution"><a class="source" href="https://upload.wikimedia.org/wikipedia/commons/4/43/Adam_Smith_The_Muir_portrait.jpg">Scottish National Gallery</a></span>
</figcaption>
</figure>
<h2>1. He invented fundamental economic concepts</h2>
<p>Among the concepts Smith came up with – or helped to popularise – are productivity, free markets and the division of labour. His use of “<a href="https://theconversation.com/how-cute-dogs-help-us-understand-adam-smiths-invisible-hand-35673">the invisible hand</a>” to describe the unseen mechanisms that regulate the market economy remains a central metaphor in contemporary economic thinking. </p>
<p>In the 19th century, economists inspired by Smith, including David Ricardo, laid the foundations of economics as the discipline we know today, by formalising economic reasoning in mathematical language. Smith’s innovative discussion of the rules of supply and demand anticipated the economic model of <a href="https://www.investopedia.com/terms/g/general-equilibrium-theory.asp">general equilibrium</a>. His theory of economic growth also inspired later economists such as John Maynard Keynes to develop the notion of gross domestic product. </p>
<h2>2. He has a cult following</h2>
<p>Smith was already famous in his lifetime, even before he published Wealth of Nations. As a professor of moral philosophy at the University of Glasgow between 1753 and 1763, his reputation attracted students from as far away as Russia. </p>
<p>However, in the 20th century, he became something of a hero for proponents of free markets. An influential thinktank founded in the 1970s, the <a href="https://www.adamsmith.org/">Adam Smith Institute</a> – dedicated to the pursuit of economic liberalism – bears his name. And as prime minister, Margaret Thatcher supposedly <a href="https://www.economist.com/books-and-arts/2018/07/26/rescuing-adam-smith-from-myth-and-misrepresentation">carried a copy</a> of Wealth of Nations in her handbag. </p>
<p>Smith is widely celebrated –- often by people who haven’t read all his works –- as a prophet of individualism and neoliberalism. People see him as the man who foresaw the rise of industrial capitalism and provided definitive arguments against the idea of government interference. This, however, is a caricature of his writings. </p>
<p>Wealth of Nations was not a celebration of individualism. Smith was all too aware of the dangers and drawbacks of unbridled capitalism. In fact, he argued that governmental intervention was needed to <a href="https://www.cambridge.org/core/journals/perspectives-on-politics/article/abs/equalizing-hand-why-adam-smith-thought-the-market-should-produce-wealth-without-steep-inequality/5F88C6D86DD80C3420E85982D72FAF50">keep economic inequalities in check</a>. He also advocated breaking up monopolies, providing public works such as roads and bridges, and educating the middle classes. </p>
<h2>3. He was the first Scot ever to appear on an English banknote</h2>
<p>Between 2007 and 2020, Smith featured on <a href="https://www.open.edu/openlearn/history-the-arts/history/the-people-on-the-notes-adam-smith">English £20 banknotes</a>. He was a proud Scotsman, a Kirkaldy native who spent his formative years in Glasgow. </p>
<p>Following Scotland’s 1707 union with England, Glasgow was asserting its place as a wealthy city of merchants. The city was benefiting from access to Britain’s growing trade empire, and by the 1740s it had become the centre of a thriving trading network with North America and the Caribbean. </p>
<p>At the University of Glasgow, Smith taught the sons of wealthy sugar and tobacco merchants and slave-labour plantation owners. They dominated local politics, invested their money in shipping and new industrial development, and were rebuilding Glasgow into an imposing city of stone. </p>
<h2>4. He was a polymath</h2>
<p>In his Glasgow classes, Smith lectured on moral philosophy, a broad humanities subject, which in 18th-century Scotland included topics as varied as morals, politics, religion, economics, jurisprudence and history. </p>
<p>He reworked some of these university lectures into a successful book, The Theory of Moral Sentiments. Published in 1759, this made him a household name throughout Europe. </p>
<p>Today, the book is mostly remembered by <a href="https://www.wsj.com/articles/theory-of-moral-sentiments-adam-smith-wealth-of-nations-economics-11671662290">historians</a>. But Smith believed his main achievement was teaching young Scots how to live a good, ethical life. Toward the end of his life, he wrote to the principal of the University of Glasgow that his 13 years as a professor of moral philosophy had been “the happiest and most honourable period” of his life.</p>
<h2>5. His legacy is controversial</h2>
<p>Smith’s economic theories have inspired a long line of free-market economists, but they also influenced Marx’s critique of capitalism. Marx admired Smith’s attempts to analyse the new modes of production that were emerging in early industrial Britain, as well as his innovative theory that wealth was related to labour. </p>
<p>Even today, Smith’s legacy is claimed both by neoliberals (who emphasise his defence of free trade) and by leftwingers (who emphasise his views on the pitfalls of capitalist economies). But Smith would have been puzzled by modern attempts to classify him as either of the right or the left. He was merely studying the changing world in which he lived: an early industrial society that was increasingly engaged in <a href="https://academic.oup.com/book/12634">colonialism and global trade</a>. It is time to reclaim Smith’s legacy from economists and to celebrate him as an astute observer of <a href="https://www.penguinrandomhouse.com/books/78907/how-the-scots-invented-the-modern-world-by-arthur-herman/">Europe’s emerging modernity</a>.</p><img src="https://counter.theconversation.com/content/205154/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Anna Plassart does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The Scottish economist dedicated his life’s work to understanding the consequences – moral, social and political – of capitalism. Both neoliberals and leftwingers claim his legacy.Anna Plassart, Senior Lecturer in History, The Open UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1847112022-08-05T12:18:17Z2022-08-05T12:18:17ZWhat is neoliberalism? A political scientist explains the use and evolution of the term<figure><img src="https://images.theconversation.com/files/477260/original/file-20220802-11521-fi7yh0.jpg?ixlib=rb-1.1.0&rect=101%2C39%2C2787%2C1809&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">President Ronald Reagan, shown here speaking in Moscow in 1980, was an early adopter of neoliberalism in the U.S. </span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/president-ronald-reagan-speaks-at-the-spaso-house-may-30-news-photo/849177?adppopup=true">Dirck Halstead/Liaison</a></span></figcaption></figure><p>Neoliberalism is a complex concept that many people use – and overuse – in different and often conflicting ways. </p>
<p>So, what is it, really? </p>
<p><a href="https://dornsife.usc.edu/cf/faculty-and-staff/faculty.cfm?pid=1008310">When discussing neoliberalism with my students</a> at the University of Southern California, I explain the phenomenon’s origins in political thought, its ambitious claims of promoting liberty and its problematic global track record. </p>
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<h2>‘Markets work; governments don’t’</h2>
<p><a href="https://plato.stanford.edu/entries/neoliberalism/">Neoliberalism contends</a> that markets allocate scarce resources, promote efficient growth and secure individual liberty better than governments. </p>
<p>According to the progressive journalist <a href="https://prospect.org/economy/neoliberalism-political-success-economic-failure/">Robert Kuttner</a>, the “basic argument of neoliberalism can fit on a bumper sticker. Markets work; governments don’t.” </p>
<p>From such a perspective, government represents bureaucratic bloat and political imposition. Government is wasteful. The verve of capitalism, along with a limited democratic politics, is neoliberalism’s balm for all that ails humankind.</p>
<p>Completing his bumper-sticker mantra, Kuttner continues, “there are two corollaries: Markets embody human freedom. And with markets, people basically get what they deserve; to alter market outcomes is to spoil the poor and punish the productive.”</p>
<h2>Evolution of neoliberalism</h2>
<p>The moniker “neoliberalism” was coined by Austrian economists Friedrich von Hayek and Ludwig Von Mises in 1938. Each elaborated his own version of the notion in 1944 books: “<a href="https://mises.org/library/road-serfdom-0">The Road to Serfdom</a>” and “<a href="https://mises.org/library/bureaucracy">Bureaucracy</a>,” respectively. </p>
<p>Neoliberalism ran contrary to the prevailing economic strategies promoted by <a href="https://www.worldcat.org/title/collected-writings-of-john-maynard-keynes/oclc/971381838">John Maynard Keynes</a>, <a href="https://www.imf.org/external/pubs/ft/fandd/2014/09/basics.htm">which encourage governments to stimulate economic demand</a>. It was the opposite of big-government socialism, <a href="https://plato.stanford.edu/entries/socialism/">whether in its Soviet manifestation or its European Social Democratic version</a>. Neoliberalism’s proponents embraced <a href="https://plato.stanford.edu/entries/neoliberalism/">classical liberal principles such as laissez-faire</a> – the policy of not intervening in markets.</p>
<p>By the 1970s, Keynesian policies were faltering. Hayek’s organization, the <a href="https://www.montpelerin.org/event/429dba23-fc64-4838-aea3-b847011022a4/summary">Mont Pelerin Society</a>, had drawn wealthy European and American benefactors to its ranks and funded <a href="https://prospect.org/economy/neoliberalism-political-success-economic-failure/">powerful think tanks such as the American Enterprise Institute and the Cato Institute</a>. These groups refined neoliberalism’s message, making it a viable and attractive ideology. </p>
<p>By the 1980s, neoliberalism had gained ascendancy with <a href="https://history.jhu.edu/faculty-books/the-great-persuasion-reinventing-free-markets-since-the-depression/">Republicans such as president Ronald Reagan</a>. High-ranking officials in the Democratic presidential administrations of <a href="https://prospect.org/economy/neoliberalism-political-success-economic-failure/">Jimmy Carter</a> and, later, <a href="https://www.nytimes.com/2022/04/05/books/review/the-rise-and-fall-of-the-neoliberal-order-gary-gerstle.html">Bill Clinton</a> also embraced neoliberalism. </p>
<p>Neoliberalism was also championed by conservatives like British Prime Minister Margaret Thatcher and by <a href="https://www.theguardian.com/books/2016/apr/15/neoliberalism-ideology-problem-george-monbiot">international institutions such as the World Bank and International Monetary Fund</a>. </p>
<p>But deregulating free markets had some unfortunate political consequences. It promoted <a href="https://doi.org/10.4000/regulation.7729">financial and labor crises in the U.S. and U.K. </a> and exacerbated <a href="https://doi.org/10.4000/regulation.7729">poverty and political instability</a>. The crisis was felt from the Global South to the U.S. Northwest, manifesting in the anti-World Trade Organization protests often referred to as the <a href="https://www.opendemocracy.net/en/oureconomy/battle-seattle-20-years-later-its-time-revival/">“The Battle of Seattle.”</a> To critics like <a href="https://www.thenation.com/article/archive/whats-neoliberal-do/">Frantz Fanon</a> and <a href="https://academic.oup.com/book/40603">David Harvey</a>, neoliberalism is more akin to neoimperialism or neocolonialism. Basically, they contend, it achieves old ends – exploiting the global working class – through new means.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/476959/original/file-20220801-33954-bmrgfx.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Mural with 'neoliberalismo' written in light-gray text and 'solidaridad' written below it in bigger, red text." src="https://images.theconversation.com/files/476959/original/file-20220801-33954-bmrgfx.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/476959/original/file-20220801-33954-bmrgfx.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=280&fit=crop&dpr=1 600w, https://images.theconversation.com/files/476959/original/file-20220801-33954-bmrgfx.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=280&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/476959/original/file-20220801-33954-bmrgfx.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=280&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/476959/original/file-20220801-33954-bmrgfx.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=352&fit=crop&dpr=1 754w, https://images.theconversation.com/files/476959/original/file-20220801-33954-bmrgfx.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=352&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/476959/original/file-20220801-33954-bmrgfx.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=352&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">A mural in Havana, Cuba, promoting ‘solidarity’ over ‘neoliberalism.’</span>
<span class="attribution"><span class="source">A. Kammas</span>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>This critique fuels <a href="https://lareviewofbooks.org/article/neoliberalism-against-democracy-wendy-browns-in-the-ruins-of-neoliberalism-and-the-specter-of-fascism/">another argument</a>: that neoliberalism harbors <a href="http://cup.columbia.edu/book/in-the-ruins-of-neoliberalism/9780231193856">anti-democratic sentiments</a>. What if citizens prefer government regulation and oversight? History demonstrates that neoliberal stalwarts would still <a href="https://jacobin.com/2021/06/neoliberalism-democracy-populist-right">push market orthodoxy over popular opinion</a>.</p>
<p>An extreme example of this was Hayek’s support of the repressive Pinochet regime in Chile. Augusto Pinochet toppled the popular socialist government of Salvador Allende in 1973. Pinochet was <a href="https://nsarchive2.gwu.edu/NSAEBB/NSAEBB110/index.htm">cautiously welcomed by the Nixon administration</a> and looked upon <a href="https://www.latimes.com/archives/la-xpm-1987-01-02-me-1475-story.html">favorably by both Reagan</a> and <a href="https://www.latimes.com/archives/la-xpm-1999-oct-07-mn-19796-story.html">Thatcher</a>. In their view, Pinochet’s commitment to neoliberalism trumped his anti-democratic character.</p>
<p>This history helps explain the election last year of Gabriel Boric, Chile’s 36-year-old president. Boric <a href="https://www.newyorker.com/magazine/2022/06/13/can-chiles-young-president-reimagine-the-latin-american-left">ran on an agenda for profound change</a> following a period of turmoil over Pinochet-era policies. His campaign slogan was “If Chile was the cradle of neoliberalism, it will also be its grave.”</p>
<h2>A flawed, contradictory ideology</h2>
<p>Beginning in the 1980s and for a long time after, neoliberalism for many Americans conjured individual liberty, consumer sovereignty and corporate efficiency. Many Democrats and Republicans alike championed it to justify their policies and attract voters. </p>
<p>But, in my opinion, that was only the popular façade of a deeply flawed ideology.</p>
<p>One need only consider the consequences of U.S. bank deregulation after <a href="https://www.economist.com/special-report/2017/05/04/how-the-2007-08-crisis-unfolded">the global financial crisis of 2008</a> to see what happens <a href="https://www.washingtonpost.com/business/economy/a-guide-to-the-financial-crisis--10-years-later/2018/09/10/114b76ba-af10-11e8-a20b-5f4f84429666_story.html">when government allows markets to run themselves</a>. Key American <a href="https://www.pewresearch.org/social-trends/2019/12/13/two-recessions-two-recoveries-2/">economic indicators</a> like class inequality also tell the grim story of unchecked markets.</p>
<p>For many Americans, however, the <a href="https://archive.nytimes.com/opinionator.blogs.nytimes.com/2014/11/30/evolution-and-the-american-myth-of-the-individual/">mythology</a> of <a href="https://www.wsj.com/articles/misconception-of-individual-liberty-letters-to-the-editor-1419984888">individual liberty</a> remains strong. U.S. politicians who hint of curtailing it – by, say, proposing more regulations or increased social expenditures – are often branded “<a href="https://www.forbes.com/sites/paulroderickgregory/2012/01/22/is-president-obama-truly-a-socialist/">socialist</a>.”</p>
<p>Ultimately, neoliberalism was a child of its time. It’s a grand narrative born of the Cold War era, claiming to have the solution to society’s ills through the power of capitalist markets and government deregulation. </p>
<p>There is no shortage of articles showing that it has not delivered on its promise. Arguably, it has <a href="https://www.newyorker.com/magazine/2018/05/14/is-capitalism-a-threat-to-democracy">made matters worse</a>.</p><img src="https://counter.theconversation.com/content/184711/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Anthony Kammas does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The word ‘neoliberal’ gets thrown around a lot, often with differing and even contradictory meanings. Here, a political economist explains the origins and evolution of this complex concept.Anthony Kammas, Associate Professor (Teaching) of Political Science, USC Dornsife College of Letters, Arts and SciencesLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1787772022-03-10T18:54:54Z2022-03-10T18:54:54ZVital Signs: what the neoliberalism-hating left should love about markets<figure><img src="https://images.theconversation.com/files/451148/original/file-20220309-743-z4t5r1.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C4281%2C2163&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>It is fashionable these days to dunk on markets. Show me something bad in the world and I’ll show you someone blaming it on “neoliberalism”.</p>
<p>Our collective failure to tackle climate change – that’s the fault of “neoliberalism”. Poverty, low wages, income inequality, housing affordability, imperfect health care and education systems – the <a href="https://amp.theguardian.com/books/2016/apr/15/neoliberalism-ideology-problem-george-monbiot">culprit is</a> “neoliberalism”. </p>
<p>Not so long ago – in the 1980s, 1990s and early 2000s, the eras of Hawke and Keating in Australia, Clinton in the US and Blair in Britain – markets were seen by those on the centre-left as the best way to create broad prosperity and what is sometimes called “inclusive growth”.</p>
<p>Then a funny thing happened on the way to the 2010s. </p>
<p>A semi-apocalyptic global financial crisis in 2008 turned “market” into a dirty word. A bunch of greedy but clever Wall Street types transformed mortgage-backed securities – a way to bundle up mortgages into bonds leading to lower borrowing costs and greater home ownership – into what famous investor Warren Buffett <a href="https://www.berkshirehathaway.com/2002ar/2002ar.pdf">once called</a> “weapons of financial mass destruction”.</p>
<p>In the wash-up of the financial crisis the good and bad aspects of markets were fused into one derogatory word: neoliberalism. </p>
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<img alt="An Occupy Wall Street protest in New York, outside the home of the chief executive of JP Morgan Chase, on October 11 2011." src="https://images.theconversation.com/files/451188/original/file-20220310-25-5nbrg2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/451188/original/file-20220310-25-5nbrg2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=298&fit=crop&dpr=1 600w, https://images.theconversation.com/files/451188/original/file-20220310-25-5nbrg2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=298&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/451188/original/file-20220310-25-5nbrg2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=298&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/451188/original/file-20220310-25-5nbrg2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=374&fit=crop&dpr=1 754w, https://images.theconversation.com/files/451188/original/file-20220310-25-5nbrg2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=374&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/451188/original/file-20220310-25-5nbrg2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=374&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">An Occupy Wall Street protest in New York, outside the home of the chief executive of JP Morgan Chase, on October 11 2011.</span>
<span class="attribution"><span class="source">Andrew Burton/AP</span></span>
</figcaption>
</figure>
<p>Belief in the power of markets to lift people out of poverty, empower households, and provide the resources to create a meaningful social safety net has become <a href="https://go.gale.com/ps/i.do?id=GALE%7CA287386101&sid=googleScholar&v=2.1&it=r&linkaccess=abs&issn=13626620&p=AONE&sw=w&userGroupName=loyoland_main">conflated</a> with the free-market fanaticism associated with Ronald Reagan and Margaret Thatcher. </p>
<p>This is a big mistake. Those on the left of politics should embrace markets. Not the fanatical laissez-faire views that oppose government and market regulation. But a view of liberalism – in the classical sense, emphasising individual liberty – that harnesses the power of markets for social and economic good.</p>
<h2>Towards democratic liberalism</h2>
<p>Two of my former colleagues at the University of Chicago, Raghuram Rajan and Luigi Zingales, capture a version of this in their brilliant 2003 book <a href="https://press.princeton.edu/books/paperback/9780691121284/saving-capitalism-from-the-capitalists">Saving Capitalism from the Capitalists</a>. So too does Joe Stiglitz with <a href="https://www.amazon.com/People-Power-Profits-Progressive-Capitalism/dp/039335833X/ref=asc_df_039335833X/?tag=hyprod-20&linkCode=df0&hvadid=459680637280&hvpos=&hvnetw=g&hvrand=6870205712395064671&hvpone=&hvptwo=&hvqmt=&hvdev=c&hvdvcmdl=&hvlocint=&hvlocphy=9057160&hvtargid=pla-901281214742&psc=1">his vision</a> of “progressive capitalism”.</p>
<p>My take is articulated in my new book with Rosalind Dixon, <a href="https://global.oup.com/academic/product/from-free-to-fair-markets-9780197625989?lang=en&cc=us">From Free to Fair Markets: Liberalism after COVID-19</a>, to be published by Oxford University Press next month, where we argue for “democratic liberalism”.</p>
<p>For us, democratic liberalism takes more seriously commitments to individual dignity and equality, as well as freedom, within the liberal tradition; placing the democratic citizen at the centre of a liberal approach. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/vital-signs-the-marketplace-for-ideas-can-fail-140429">Vital Signs: the 'marketplace for ideas' can fail</a>
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</p>
<hr>
<p>It draws heavily on the “capabilities approach” to human welfare of Amartya Sen and Martha Nussbaum, which acknowledges it’s not enough just to have a “level playing field”. It insists on universal access to dignity, a “generous social minimum” for all. And it insists unregulated markets do not serve those ends.</p>
<h2>‘Capitalism is irredeemable’</h2>
<p>In particular, so-called “neoclassical” economists have long maintained that monopoly power (in business or politics) and externalities, such as carbon pollution, distort and damage markets. </p>
<p>We need to do more to make markets work better – not abandon markets altogether. </p>
<p>As Buffett <a href="https://markets.businessinsider.com/news/stocks/warren-buffett-agree-bernie-sanders-capitalism-regulation-socialism-election-vote-2020-2-1028932198">said</a>:</p>
<blockquote>
<p>We ought to do better by the people that get left behind by our capitalist system. I don’t think we should kill the capitalist system in the process.</p>
</blockquote>
<p>Contrast this with the US left’s icon <em>du jour</em>, New York congresswoman Alexandria Ocasio-Cortez, who in 2019 said <a href="https://www.businessinsider.com.au/alexandria-ocasio-cortez-says-capitalism-is-irredeemable-sxsw-socialist-2019-2019-3?r=US&IR=T">capitalism was irredeemable</a>. </p>
<p>Asked what she meant by this <a href="https://www.realclearpolitics.com/video/2022/02/06/alexandria_ocasio-cortez_capitalism_is_not_a_redeemable_system_for_us.html">last month</a>, she described capitalism as:</p>
<blockquote>
<p>the ability for a very small group of actual capitalists – and that is people who have so much money that their money makes money and they don’t have to work – to control industry. They can control our energy sources. They can control our labour. They can control massive markets that they dictate and can capture governments. And they can essentially have power over the many.</p>
</blockquote>
<p>To be fair, that doesn’t sound so great to me either. </p>
<p>And I get that Ocasio-Cortez is not a fusty scholar but a (very successful) politician and activist. Nuance doesn’t play well in those worlds. But nuance is required when thinking about how society should be arranged.</p>
<h2>We’ve been here before</h2>
<p>This isn’t society’s first rodeo on these matters. </p>
<p>One of the more consequential debates about liberalism versus socialism – which became known as the <a href="https://www.jstor.org/stable/23722610?seq=1#metadata_info_tab_contents">socialist calculation debate</a> – began in the 1920s between neoclassical economists Ludwig von Mises and Friedrich Hayek and socialist economists Fred Taylor, Oskar Lange and Abraham “Abba” Lerner.</p>
<p>At issue was whether Soviet-style socialism and its central planning could replicate the virtues of free markets without the downsides of inequality.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/451180/original/file-20220310-25-ie0doi.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Alexandria Ocasio-Cortez on-message at New York City's high-society event the Met Gala in September 2021." src="https://images.theconversation.com/files/451180/original/file-20220310-25-ie0doi.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/451180/original/file-20220310-25-ie0doi.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/451180/original/file-20220310-25-ie0doi.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/451180/original/file-20220310-25-ie0doi.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/451180/original/file-20220310-25-ie0doi.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/451180/original/file-20220310-25-ie0doi.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/451180/original/file-20220310-25-ie0doi.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Alexandria Ocasio-Cortez on-message at New York City’s high-society event the Met Gala in September 2021.</span>
<span class="attribution"><span class="source">NDZ/STAR MAX/IPx/AP</span></span>
</figcaption>
</figure>
<p>The clinching argument in this debate came from Hayek, who pointed out the market’s price mechanism is invaluable for <a href="https://www.jstor.org/stable/1809376?seq=1#metadata_info_tab_contents">aggregating and communicating information</a>. </p>
<p>No central planner can ever replicate the price mechanism’s ability to give producers and consumers information they need to make the best decisions.</p>
<h2>Lower prices, higher incomes</h2>
<p>The character <a href="https://westwing.fandom.com/wiki/Toby_Ziegler">Toby Ziegler</a> in The West Wing succinctly expressed the virtues of free trade and free markets more generally when he said (courtesy of Aaron Sorkin and his fellow writers) “it lowers prices, it raises incomes”.</p>
<p>In 1990 more than a third of the world’s 5.3 billion people lived in abject poverty, on less than US$1.90 a day. </p>
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<iframe width="440" height="260" src="https://www.youtube.com/embed/8dGkiJcEK78?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
</figure>
<p>Now about <a href="https://www.worldvision.org/sponsorship-news-stories/global-poverty-facts">9%</a> of the globe’s 7.9 billion people live in such poverty. That’s about 1.2 billion fewer people, an extraordinary testament to the power of markets. </p>
<p>Since 2008 – and during the coronavirus pandemic – the limitations of free markets have come into sharp relief. More – much more – needs to be done to make markets fairer. That means a commitment to the dignity and freedom of all. </p>
<p>But it also means a commitment to the hard work of building a more prosperous society, not just shrieking from the sidelines, complaining about the things that are wrong, and misidentifying the solution.</p>
<hr>
<p><em>Section editor’s note: I am sad to report that after six years and hundreds of contributions, this is Richard Holden’s final column for The Conversation. He is leaving us to write weekly and exclusively for <a href="https://www.afr.com/">The Australian Financial Review</a>. We are extraordinary grateful for all he has done. We will miss him. And we will keep reading him. – Peter Martin</em></p><img src="https://counter.theconversation.com/content/178777/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Richard Holden is President of the Academy of the Social Sciences in Australia.</span></em></p>It’s time for a new brand of democratic liberalism that understands and harnesses the power of markets for social and economic good.Richard Holden, Professor of Economics, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1653062021-07-30T04:11:44Z2021-07-30T04:11:44ZVital Signs: Uber’s impact on traffic accidents is a lesson in calculating social benefit<figure><img src="https://images.theconversation.com/files/413684/original/file-20210729-13-1xlinec.jpg?ixlib=rb-1.1.0&rect=17%2C278%2C5973%2C3008&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Twinsterphoto/Sutterstock</span></span></figcaption></figure><p>Uber has been great for some people and bad for others.</p>
<p>It has been good for its founders and investors. It has been good for riders who get a convenient and well-priced new way to travel. And it has been good for some drivers who want flexible work. </p>
<p>On the other hand, taxi drivers have clearly lost out. Uber has put a serious dent in the value of taxi “plates” and “medallions”. It has also arguably contributed to lower wages for some drivers. </p>
<p>How do we tally up the total social value of Uber? Or, for that matter, any other business or technological innovation? That’s a question raised by a new economics working paper finding that Uber has helped reduce drunk driving.</p>
<h2>Uber’s economic benefit</h2>
<p>Anyone who takes rides with Uber knows it is a handy service — so handy that research suggests consumers would be prepared to pay up to 60% more for it. </p>
<p>This was calcluated in 2015 by five US economists in a National Bureau of Economic Research (NBER) <a href="https://www.nber.org/papers/w22627">working paper</a>. All up that equated to US Uber users valuing the service at US$6.8 billion a year more than what they they spent on it. </p>
<p>Such a valuation is known as the consumer surplus — the extra benefit a consumer gets on top of the price they pay for something. </p>
<p>Uber’s market capitalisation (in excess of<a href="https://ycharts.com/companies/UBER/market_cap">US$80 billion</a>) meanwhile reflects its producer surplus — the benefit the producer gets from selling something. Typically this might be thought of as the profit, with the market capitalisation basically being the current value of all expected future profits.</p>
<h2>Factoring in externalities</h2>
<p>An introductory economics textbook will tell you the sum of consumer surplus and producer surplus equals the total benefit to society. This can be illustrated using a simplified demand and supply chart (as shown). </p>
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<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/413882/original/file-20210730-25-h0hc1y.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/413882/original/file-20210730-25-h0hc1y.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/413882/original/file-20210730-25-h0hc1y.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=597&fit=crop&dpr=1 600w, https://images.theconversation.com/files/413882/original/file-20210730-25-h0hc1y.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=597&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/413882/original/file-20210730-25-h0hc1y.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=597&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/413882/original/file-20210730-25-h0hc1y.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=750&fit=crop&dpr=1 754w, https://images.theconversation.com/files/413882/original/file-20210730-25-h0hc1y.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=750&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/413882/original/file-20210730-25-h0hc1y.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=750&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Graph illustrating consumer surplus and producer surplus.</span>
<span class="attribution"><a class="source" href="https://commons.wikimedia.org/wiki/File:Consumer_producer_surplus_from_finn.png">Lendu/Bkwillwm/Wikimedia</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span>
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<hr>
<p>However, the field of welfare economics tells us when this simple arithmetic is not necessarily so. </p>
<p>The first fundamental theorum of welfare economics — known at the First Welfare Theorem — sets out the conditions for Adam Smith’s aphorism that competition and the invisible hand of the market lead to the common good. </p>
<p>A theorem is more than a theory. It is a mathematical truth. The First Welfare Theorem — the most celebrated result in all of economics — was first formally proven in 1951 by <a href="https://digitalassets.lib.berkeley.edu/math/ucb/text/math_s2_article-37.pdf">Kenneth Arrow</a> and <a href="https://www.jstor.org/stable/pdf/1906814.pdf?casa_token=T9LaZ3EnRfsAAAAA:S0b1RLcrZNUC8HuyFhnXlJlO3YpeGMBA0heR_od-85SwUbLjOn___mdiDZ5hIfN3O-8PsTZkLt5BUUknT0H0IpKawFLPArnV75QjDRVKTVCACQtM5gQ">Gerard Debreu</a>.</p>
<p>It says the free market can maximise total societal welfare, but only based on a few crucial assumptions. One is that there are no “externalities” — that is, a transaction between a buyer and seller doesn’t affect anyone else.</p>
<p>For example, if I like Diet Coke that probably doesn’t affect you. Why do you care what I drink? I’m only one person so I can’t even affect you by driving up the price of my preferred beverage. </p>
<p>But things aren’t always so simple. What if I have raucous parties and blast loud music into the early hours of the morning? That might be fun for me and my guests, but certainly not for my neighbours.</p>
<p>That’s why “noise pollution” is banned. It’s an externality. It requires regulatory intervention to be corrected. For the same reasons economists advocate a price on carbon emissions, to fix what’s going wrong in the competitive market that allows greenhouse gas pollution.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/vital-signs-a-3-point-plan-to-reach-net-zero-emissions-by-2050-132436">Vital Signs: a 3-point plan to reach net-zero emissions by 2050</a>
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<p>All of which is to say we can’t always just look at market outcomes, nor simply add up consumer and producer surplus, to understand the social benefit of an innovation or technology.</p>
<h2>Uber’s positive externalities</h2>
<p>Which brings us back to Uber.</p>
<p>Enter an interesting new NBER working paper, <a href="https://www.nber.org/papers/w29071?utm_campaign=ntwh&utm_medium=email&utm_source=ntwg24">Uber and Alcohol-related traffic fatalities</a>, by economists Michael Anderson and Lucas Davis of the University of California, Berkeley.</p>
<p>The paper begins with a plausible hypothesis: that some people before the advent of Uber might have chosen to drive their own car, and then drive home drunk after a big night. In many cases Uber is cheaper and more convenient than the taxis that were an option in such circumstances.</p>
<p>If that’s right, then Uber (and other convenient “rideshare” services) will have reduced the incidence of drunk driving, and the accidents and fatalities resulting. This would be an example of a positive externality — a benefit to third parties (or in this case society).</p>
<p>Anderson and Lucas combined data from the National Highway Traffic Safety Administration Fatality Analysis Reporting System and proprietary rideshare activity data from Uber. They then compared areas or greater and less Uber penetration, to helps factor out common trends in, say, safer motor vehicles or more stringent traffic laws. They conclude:</p>
<blockquote>
<p>our results imply that ridesharing has decreased US alcohol-related traffic fatalities by 6.1% and reduced total US traffic fatalities by 4.0%.</p>
</blockquote>
<p>They convert this into a dollar value using the conventional measure of the so-called “value of statistical life”. This leads to a benefit of US$2.3 billion to US$5.4 billion a year — a significant value on top of Uber’s estimated consumer surplus.</p>
<p>So the winners from Uber are consumers, producers and society. </p>
<h2>Broader lessons</h2>
<p>Markets are great. Except when they’re not. One important reason for “not” is negative externalities like pollution. That’s also why a really important role of government is to use policy tools to internalise such externalities.</p>
<p>In the case of ridesharing, governments need to be attentive to those that lose from its advent. Indeed, in 2016 <a href="http://research.economics.unsw.edu.au/richardholden/assets/professor-holden_compensation_report_final.pdf">I proposed a compensation scheme</a> to do just that for taxi plate holders.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/how-uber-drivers-avoided-and-contributed-to-the-fate-of-taxi-drivers-158339">How Uber drivers avoided — and contributed to — the fate of taxi drivers</a>
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<p>But sometimes there are positive externalities from technological innovations. The same logic that applies to taxing negative externalities tells us we should subsidise positive externalities.</p>
<p>I’m not sure that’s going to happen with Uber rides. And, of course, without a carbon tax ridesharing still contributes to pollution externalities. So there are pluses and minuses in the “social benefit of Uber” calculus.</p>
<p>But Anderson and Davis compellingly demonstrate that positive externalities can be large and important, all by themselves.</p><img src="https://counter.theconversation.com/content/165306/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Richard Holden is President-elect of the Academy of the Social Sciences in Australia. In 2016 he wrote a report on taxi-plate compensation commissioned by Uber.</span></em></p>Uber’s downsides are well publicised, but it may have a big social benefit in helping to reduce the incidence of drunk driving.Richard Holden, Professor of Economics, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1404292020-06-11T19:55:42Z2020-06-11T19:55:42ZVital Signs: the ‘marketplace for ideas’ can fail<figure><img src="https://images.theconversation.com/files/341113/original/file-20200611-114109-1l3isv2.jpg?ixlib=rb-1.1.0&rect=585%2C0%2C4692%2C2385&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>There is no shortage of repugnant and dangerous ideas in the world. An age old question is whether free speech will see good ideas win out over bad.</p>
<p>The proposition that good ideas eventually triumph in “the marketplace for ideas” dates at least to 1644, when John Milton wrote in his anti-censorship tract <a href="https://www.dartmouth.edu/%7Emilton/reading_room/areopagitica/text.html">Areopagitica</a>:</p>
<blockquote>
<p>Let [Truth] and Falsehood grapple; who ever knew Truth put to the worse, in a free and open encounter?</p>
</blockquote>
<p>But it was perhaps first explicitly stated by United States Supreme Court Justice Oliver Wendell Holmes in 1919, in his dissent to a 7–2 ruling in the <a href="https://supreme.justia.com/cases/federal/us/250/616/#tab-opinion-1928349">Abrams v United States</a> case involving the first amendment right to freedom of speech.</p>
<p>Holmes wrote:</p>
<blockquote>
<p>the ultimate good desired is better reached by free trade in ideas – that the best test of truth is the power of the thought to get itself accepted in the competition of the market.</p>
</blockquote>
<p>Old though this question may be, it is one that confronts us time and again. Is it more dangerous to stifle expression of a seemingly dangerous idea, or to let it be freely expressed?</p>
<p>It is central to the controversy over the New York Times publishing on June 3 an idea many found repugnant.</p>
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<img alt="" src="https://images.theconversation.com/files/341086/original/file-20200611-114070-14ny50r.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/341086/original/file-20200611-114070-14ny50r.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=561&fit=crop&dpr=1 600w, https://images.theconversation.com/files/341086/original/file-20200611-114070-14ny50r.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=561&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/341086/original/file-20200611-114070-14ny50r.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=561&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/341086/original/file-20200611-114070-14ny50r.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=704&fit=crop&dpr=1 754w, https://images.theconversation.com/files/341086/original/file-20200611-114070-14ny50r.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=704&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/341086/original/file-20200611-114070-14ny50r.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=704&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">A screen grab of the Tom Cotton article on the New York Times website.</span>
<span class="attribution"><a class="source" href="https://www.nytimes.com/2020/06/03/opinion/tom-cotton-protests-military.html?action=click&module=Opinion&pgtype=Homepage">New York Times</a></span>
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<p>That idea was “an overwhelming show of force to disperse, detain and ultimately deter lawbreakers” as a response to widespread Black Lives Matter demonstrations and isolated outbreaks of violence and looting. It was advocated in an <a href="https://www.nytimes.com/2020/06/03/opinion/tom-cotton-protests-military.html?action=click&module=Opinion&pgtype=Homepage">op-ed piece</a> by a US senator from Arkansas, Tom Cotton. </p>
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<em>
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Read more:
<a href="https://theconversation.com/in-publishing-tom-cotton-the-new-york-times-has-made-a-terrible-error-of-judgment-140065">In publishing Tom Cotton, the New York Times has made a terrible error of judgment</a>
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<p>Editorial page editor James Bennet <a href="https://www.nytimes.com/2020/06/07/business/media/james-bennet-resigns-nytimes-op-ed.html">resigned</a> as part of the paper’s mea culpa. A champion of the “marketplace of ideas” might argue the New York Times did the right thing, or at least nothing wrong.</p>
<p>So what would an economist, whose job is to understand market behaviour, say? </p>
<h2>Economists and markets</h2>
<p>Now economists generally like markets. </p>
<p>The most celebrated result in all of economics – the “First Welfare Theorem” formalised by Nobel laureates <a href="https://www.jstor.org/stable/1907353?seq=1#metadata_info_tab_contents">Kenneth Arrow and Gerard Debreu</a> – states that with the right conditions competitive markets will allocate resources with maximum efficiency.</p>
<p>Yet economists – especially and including Arrow and Debreu – are all too aware that markets don’t always function well in reality. Information is often “asymmetric”, such as a seller knowing more about a product’s quality than the buyer. There are “externalities”, costs incurred by third parties, such as environmental harms not factored into market prices. Plenty of markets are not sufficiently competitive.</p>
<p>The failure of markets for insurance, used cars and many other things has been <a href="https://www.jstor.org/stable/24712687?seq=1#metadata_info_tab_contents">well-documented</a>. </p>
<p>Why, then, why should we have faith in the marketplace for ideas?</p>
<h2>Ideas are not products</h2>
<p>Over the past two decades economists have been developing formal models that can speak to competition in ideas. </p>
<p>The stepping-off point is to note the nature of competition in an ideas market is fundamentally different from competition in a product market.</p>
<p>With products, sellers compete for customers by setting the price for their products. As the economists <a href="https://www.brown.edu/Research/Shapiro/pdfs/jepmedia.pdf">Matthew Gentzkow and Jesse Shapiro put it</a>:</p>
<blockquote>
<p>Two firms compete [in the product market] if their products are substitutes from the perspective of consumers. A change in the price of one affects the purchasing behaviour of the other’s customers. This kind of competition is important because it limits firms’ ability to raise price above marginal cost.</p>
</blockquote>
<p>Ideas differ in the following way:</p>
<blockquote>
<p>Two firms compete in [an information market] if 1) they cover the same events and 2) at least some consumers will learn the facts reported by both. A change in the set of facts one reports affects the information of the other’s customers. This kind of competition limits firms’ ability to control consumers’ beliefs.</p>
</blockquote>
<h2>A form of prisoner’s dilemma</h2>
<p>The cleanest formal model of competition between parties trying to control people’s beliefs comes from a <a href="https://faculty.chicagobooth.edu/emir.kamenica/documents/CompetitionInPersuasion.pdf">2017 paper</a> by Matthew Gentzkow and Emir Kamenica (a former classmate and University of Chicago colleague of mine).</p>
<p>The “marketplace for ideas” notion holds that when there are more senders of information, more information will be communicated to consumers.</p>
<p>Gentzkow and Kamenica showed this is not necessarily so. It all depends on the nature of the strategic interaction between the senders of information.</p>
<p>Senders might be caught in a kind of <a href="https://www.britannica.com/science/game-theory/The-prisoners-dilemma">Prisoner’s Dilemma</a>, the game theory concept made famous by the movie A Beautiful Mind. It would be socially productive for more information to be revealed, but the private incentives of the senders lead to less revelation. </p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/the-legacy-of-john-nash-and-his-equilibrium-theory-42343">The legacy of John Nash and his equilibrium theory</a>
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<p>For example, consider two pharmaceuticals makers with drugs only they know the effectiveness of. One half of their market is customers who will only buy pharmaceuticals they believe likely to work well. The other half wants their drugs to work too, but they’ll also buy if it might only partially work.</p>
<p>In this case each maker has an incentive to withhold information about the efficacy of their product, even though they and the consumers would be better off if they and the rival revealed more information. It’s just like the consequences of unilateral action as shown in A Beautiful Mind.</p>
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<p>If strategic interaction in the marketplace for ideas takes this form then competition does not lead to good arguments winning out.</p>
<p>Gentzkow and Kamenica show the crucial condition for competition to lead to more information being revealed is this: each sender must be able to unilaterally deviate to some outcome more informative for consumers. In the drug example, this would be each maker disclosing the efficacy of their own drug <em>and</em> that of their competitor.</p>
<p>Whether this happens in practice depends on important details about the nature of the ideas being discussed, what types of information are permissible by law, and of course whether those receiving information are rational.</p>
<p>In short, the answer to whether the marketplace for ideas leads good ideas to win out is: it depends.</p>
<h2>Open discussion is not enough</h2>
<p>Just because the marketplace for ideas doesn’t always work doesn’t mean it never works. There are deeply important non-economic reasons to value freedom of speech that extend beyond how much information gets revealed.</p>
<p>But modern economics teaches us that competition in the marketplace for ideas is different than competition in the market for ordinary goods and services. We should not always conclude that odious ideas will be consigned to the dustbin of history simply through open discussion.</p><img src="https://counter.theconversation.com/content/140429/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Richard Holden does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Competition in the marketplace for ideas is different to competition in the market for ordinary goods and services. Bad ideas don’t necessarily get trashed.Richard Holden, Professor of Economics, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1364722020-05-26T12:20:42Z2020-05-26T12:20:42ZClap all you like now, but workers with meaningful jobs deserve to be valued in a post-coronavirus economy too<figure><img src="https://images.theconversation.com/files/337042/original/file-20200522-124840-1lrlsvn.jpg?ixlib=rb-1.1.0&rect=8%2C107%2C5982%2C3880&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Grocery workers have been essential during the pandemic. so should we be paying them more?</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/fresh-direct-worker-in-protective-face-mask-and-gloves-news-photo/1226288895?adppopup=true">Rob Kim/Getty Images)</a></span></figcaption></figure><p>The coronavirus recession has laid bare how illogically the U.S. labor market values work that matters.</p>
<p>In the United States, as elsewhere, citizens have been extolling the role of essential workers – such as nurses, grocery suppliers and delivery drivers – by, for example, <a href="https://abc7ny.com/health/quarantined-new-yorkers-clap-for-essential-workers-%7C-video/6060936/">rewarding them with nightly claps</a>. Yet many of these employees <a href="https://www.washingtonpost.com/business/2020/04/06/why-do-so-many-essential-workers-get-paid-so-little-heres-what-economists-have-say/">receive low pay</a> and <a href="https://theconversation.com/coronavirus-shows-key-workers-need-better-pay-and-protection-heres-what-has-to-change-137037">few protections</a>, suggesting a different appreciation of their worth in the market.</p>
<p>But in highlighting this disconnect, perhaps the crisis has also provided an opportunity to reimagine an economy that values jobs for something more than just wealth creation: meaningfulness.</p>
<h2>A moral market?</h2>
<p><a href="https://doi.org/10.1007/s10551-019-04389-0">Meaningfulness</a> has to do with how much one’s work matters in a moral sense, which is not always signified by how much money a job pays. It often relates to personal fulfillment from work but may also concern the social contribution work makes and what, morally, we ought to value. Contemporary social scientists and philosophers cite historical thinkers as diverse as <a href="https://hbr.org/2011/12/adam-smith-was-not-a-schizophr">Adam Smith</a> and <a href="https://www.theschooloflife.com/thebookoflife/the-great-philosophers-karl-marx/">Karl Marx</a> as recognizing the potential for meaningless work to detract from human well-being.</p>
<p>Unfortunately, our labor market tends not to account adequately for morality. For example, it often assigns less tangible value, such as money, to meaningful work that is intangibly valuable. A high school teacher may have a harder time accounting for her share in the success of a former student’s business venture than does the investment banker who helped fund the startup. </p>
<p>Workers who risk their well-being to clean bedpans at hospitals and stock shelves at grocery stores may have only the reassurance that their work is essential to augment their relatively meager compensation.</p>
<p>To suggest that moral values should be more integral to the free market is neither anti-capitalist nor partisan. As an <a href="https://business.stthomas.edu/faculty-research/faculty-bios/michaelson-christopher/">ethics professor and business adviser</a>, I know it is widely accepted that markets are imperfect and require mediation to balance out inequities.</p>
<p>Even a celebrated market economist like <a href="https://www.goodreads.com/book/show/51877.Capitalism_and_Freedom">Milton Friedman recognized</a> that the free market undervalues some things. Accordingly, disruptions from events like the current pandemic warrant public and private sector coordination to ensure an adequate supply of essential goods and services. </p>
<h2>Checks and bank balances</h2>
<p>The recently passed <a href="https://www.wsj.com/articles/house-lawmakers-race-to-washington-to-ensure-coronavirus-stimulus-passes-11585318472">bipartisan stimulus</a> package that offers proportionately more to people who have less is consistent with this view that markets warrant intervention when it can stave off human suffering.</p>
<p>Similarly, wealthy individuals often <a href="https://www.businessinsider.com/billionaires-spending-hundreds-of-millions-on-coronavirus-research-2020-3">act generously</a> when they perceive distress that may be caused by unfairness in market mechanisms – for example, by <a href="https://www.si.com/nba/2020/03/14/nba-teams-players-help-pay-workers">donating money to make up for lost wages</a>. But this only highlights a system that rewards some people with so much wealth that they can cover the missed paychecks of hundreds or thousands of others.</p>
<p>But I would argue that bailout checks and individual acts of kindness are not nearly enough. They may even have the <a href="https://hbr.org/2016/10/praising-customers-for-ethical-purchases-can-backfire">unintended consequence of moral licensing</a> – creating the false impression among individuals that they have fully done their part to mitigate the problem. </p>
<p>Laid-off workers having to look for new work in what could be a <a href="https://www.bloomberg.com/news/articles/2020-05-19/global-downturn-risks-becoming-prolonged-recession-wef-says">prolonged, post-pandemic recession</a> will not find long-term stability in temporary infusions of cash and charity. Economic and social recovery will require the creation of <a href="https://www.nytimes.com/2020/05/14/business/economy/coronavirus-unemployment-claims.html">tens of millions of jobs for those who have filed unemployment claims</a>. But we should also be looking to promote meaningful work in a post-pandemic economy through the rewarding of pay that is proportional to a work’s meaningfulness.</p>
<p><a href="https://fortune.com/2020/03/20/essential-workers-government-list-employees-coronavirus/">Work deemed essential</a> in the pandemic has taken on more meaning because it is urgent to people now. However, even after this crisis has passed, much of this work will continue to be essential to our society.</p>
<p>Meaningfulness can also apply to work that seems less urgent but nonetheless important, such as the concerts and performances that we are now missing. Unfortunately, funding for the <a href="https://www.forbes.com/sites/leeseymour/2020/04/16/de-blasios-new-budget-would-decimate-new-york-theaters-already-reeling-from-pandemic/#662456d41b40">arts</a> and <a href="https://timesofsandiego.com/education/2020/05/16/california-teachers-face-layoffs-as-pandemic-forces-big-state-budget-cuts/">public education</a> is an easy target when budgets are strapped.</p>
<p>In times of disaster, those who are most vulnerable are often those who are harmed the most, a phenomenon called <a href="https://www.goodreads.com/book/show/1376863.At_Risk">differential exposure</a>. For example, during the pandemic, the lower an employee ranks in an organizational hierarchy, the <a href="https://time.com/5795651/coronavirus-workers-economy-inequality/">more likely they are to encounter frontline hazards</a>.</p>
<p>Similarly, when we emerge from the economic aspect of this disaster, as after the <a href="https://www.epi.org/publication/the-new-gilded-age-income-inequality-in-the-u-s-by-state-metropolitan-area-and-county/">Great Recession</a>, those who already had the greatest financial means are likely to be the most prepared to <a href="https://www.reuters.com/article/us-wealthreport/worlds-rich-got-richer-amid-09-recession-report-idUSTRE65L36T20100622">increase their wealth</a>.</p>
<h2>More than applause</h2>
<p>If we allow that return to economic normalcy, ordinary workers who have suffered greater losses in the downturn will also be in the most uncertain position to benefit from the recovery. Americans could redress this by reprioritizing the place of meaningfulness in how they measure and remunerate work that matters.</p>
<p>Of course, restructuring the economy to recognize meaningfulness is complex and some would say fanciful. But I believe the moral values of our markets are a reflection of our individual and social values. And there are things that can be done to move in that direction: Prospective employees can pursue work that makes a moral contribution to society, companies can adopt more socially conscious statements of purpose and policymakers can look at ways to better acknowledge the nonmonetary contribution of work to society. </p>
<p>After this pandemic is over, health care workers should still be <a href="https://www.timeout.com/newyork/news/watch-videos-of-tonights-massive-citywide-clap-for-essential-workers-040320/">greeted with nightly applause</a>, grocery store workers <a href="https://www.latimes.com/california/story/2020-03-25/supermarket-clerks-heroes-new-first-responders-coronavirus">should still be treated as heroes</a> and delivery drivers should still be <a href="https://www.goodmorningamerica.com/living/video/man-left-hand-sanitizer-toilet-paper-doorstep-delivery-69924269">surprised with gifts</a>. It would be nice if they were paid accordingly too. </p>
<p>[<em>Insight, in your inbox each day.</em> <a href="https://theconversation.com/us/newsletters?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=insight">You can get it with The Conversation’s email newsletter</a>.]</p><img src="https://counter.theconversation.com/content/136472/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Christopher Michaelson does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>After the pandemic is over, grocery workers and nurses will still be essential. But will they be paid any better?Christopher Michaelson, Professor of Ethics and Business Law, University of St. ThomasLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1216852019-09-10T11:56:28Z2019-09-10T11:56:28ZMarket-based policies work to fight climate change, from India to Jamaica<p>The <a href="https://www.press.uchicago.edu/ucp/books/book/chicago/C/bo18146821.html">economic foundation</a> at the heart of conservative political philosophy is that markets are the best way to allocate the bulk of society’s resources.</p>
<p>That faith in markets explains the Republican Party’s preference for, say, <a href="https://www.economist.com/the-economist-explains/2016/12/11/why-republicans-hate-obamacare">private medical insurance</a> over a government-run American health system. And it informs their push to <a href="https://www.forbes.com/sites/mayrarodriguezvalladares/2018/08/22/why-do-republicans-want-to-gut-bank-regulations-even-more/">loosen regulations that have governed big banks</a> since the 2009 financial crisis.</p>
<p>This emphasis on markets is also on display in many policies that conservative parties across the globe are enacting to address climate change. Climate change may be a <a href="https://theconversation.com/caribbean-residents-see-climate-change-as-a-severe-threat-but-most-in-us-dont-heres-why-91049">partisan issue in the United States</a>, but numerous <a href="https://www.pewresearch.org/fact-tank/2019/04/18/a-look-at-how-people-around-the-world-view-climate-change/">surveys of other countries</a> reveal that tackling climate change is <a href="https://www.ipsos.com/en/global-warming-issue-unites-world-opinion">not incompatible with conservative principles</a>.</p>
<h2>Conservative governments with a strong climate record</h2>
<p>Across Europe, Conservatives have gotten behind <a href="https://theconversation.com/taxes-and-caps-on-carbon-work-differently-but-calibrating-them-poses-the-same-challenge-104898">cap and trade</a>, a market-based system for reducing carbon emissions. </p>
<p>The <a href="https://ec.europa.eu/clima/policies/ets_en">European Emission Trading</a> system, passed by the European Commission in 2005 with support across the ideological spectrum, sets limits on the continent’s annual carbon emissions. Companies that pollute more may purchase carbon rights from those who find innovative ways to reduce their own emissions, capping total pollution while giving individual firms the freedom to buy and sell their share. </p>
<p>The cap-and-trade strategy was first put into practice in the United States in 1990, under President George Bush, <a href="https://www.smithsonianmag.com/science-nature/the-political-history-of-cap-and-trade-34711212/">to combat acid rain</a>. </p>
<p>In Germany, an industrial powerhouse, <a href="https://www.cleanenergywire.org/factsheets/making-climate-chancellor-angela-merkel">Chancellor Angela Merkel</a> of the center-right Christian Democratic party, has <a href="https://www.climatechangenews.com/2019/06/19/merkel-fallen-climate-chancellor-chance-save-legacy/">strongly supported</a> a comprehensive climate law that would combine cap and trade, tax incentives for renewable energy and major investments in energy efficiency.</p>
<p>To be fair, the political spectrum in Europe skews left. But conservatives in more right-leaning countries are fighting climate change, too.</p>
<p>India’s hard-right Prime Minister Narendra Modi – leader of the world’s largest democracy – is a strong proponent of renewable energy. While his administration maintains support for the coal industry, solar production is set to <a href="https://www.news18.com/news/politics/promise-of-renewable-and-clean-energy-what-changed-in-bjps-five-years-2093747.html">increase five-fold in India by 2022</a>. </p>
<p>And Chilean President Sebastian Piñera, who holds <a href="https://www.nytimes.com/2017/12/17/world/americas/chile-presidential-election.html">strong conservative views</a> on many social issues, has nonetheless embraced some of the <a href="https://climateactiontracker.org/countries/chile/">most stringent climate goals</a> in Latin America. </p>
<p>According to the Climate Action Tracker, which monitors countries’ progress toward reducing carbon emissions, Chile will generate 65% of its electricity from renewable energy by 2035, and has imposed strict new energy efficiency standards on manufacturing, mining and transportation.</p>
<p>In Jamaica, the Labour Party – the island’s conservative party – has endorsed a new “<a href="https://theconversation.com/jamaica-leads-in-richard-branson-backed-plan-for-a-caribbean-climate-revolution-105478">climate accelerator</a>.” Backed by billionaire Richard Branson and the <a href="https://www.iadb.org/en/news/idb-join-new-caribbean-climate-smart-accelerator-facilitate-1bn-investments">Inter-American Development Bank</a>, the initiative aims to make this vulnerable region more resilient by <a href="https://www.worldbank.org/en/news/press-release/2018/08/09/caribbean-aims-become-world-first-climate-smart-zone">attracting financing</a> to scale up renewable energy, build low-carbon infrastructure and increase investments in green technology.</p>
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<h2>Climate change is a market failure</h2>
<p>I am an <a href="https://www.middlebury.edu/institute/people/jason-scorse">environmental economist</a>, but it doesn’t require advanced training in economics to recognize the basic principles underlying all these conservative-backed environmental policies.</p>
<p>The first is conservative faith that financial markets can adapt and innovate to address today’s climate challenge. </p>
<p>There’s evidence for this belief. Renewable power – which was economically unviable just a decade ago – <a href="https://www.forbes.com/sites/dominicdudley/2018/01/13/renewable-energy-cost-effective-fossil-fuels-2020/#55616b3e4ff2">is so affordable now</a> because governments and companies around the world have <a href="https://ourworldindata.org/renewable-energy">invested immensely in solar and wind</a>. What is expensive today can be made cheap tomorrow if governments put the right incentives in place. </p>
<p>The second basis for the climate policies conservatives worldwide support is an understanding that, under <a href="https://scholarworks.umass.edu/cgi/viewcontent.cgi?article=1017&context=econ_workingpaper">certain circumstances</a>, markets can and do fail. </p>
<p>Markets function properly only under certain conditions. </p>
<p>First, the harmful impacts of producing a given good – which economists call “<a href="https://pressbooks.bccampus.ca/uvicecon103/chapter/5-1-externalities/">negative externalities</a>” – cannot hurt anyone other than the producers and consumers of that good. There must also be clear and enforceable property rights over every good in the marketplace. </p>
<p>When these bedrock principles are violated, market breakdown ensues. </p>
<p>Take air pollution, for example. When a chemical factory that produces a cleaning product releases toxic fumes, the cost of that pollution – the negative externality – is not borne exclusively by the buyer or seller of that product. Everyone who inhales the fumes suffers. </p>
<p>Yet because no one owns the “property rights” to the atmosphere, no one can hold the chemical factory or its clients legally responsible for contaminated air. </p>
<p>This is market failure. And in the environmental realm, it is the norm. </p>
<p>Every coal plant or natural gas field that emits the <a href="https://www.nationalgeographic.com/environment/global-warming/greenhouse-gases/">greenhouse gases that drives climate change</a> free of charge is violating the fundamental principle of well-functioning markets. </p>
<p>Policies like Europe’s cap and trade system or Britain’s <a href="https://uk.reuters.com/article/uk-eu-britain-carbontrading/british-carbon-tax-to-start-november-4-in-the-event-of-no-deal-brexit-government-idUKKCN1U70NG">carbon tax</a>, which will soon require companies <a href="https://www.c2es.org/content/carbon-tax-basics/">pay a fee</a> for every unit of pollution they emit, are designed to fix this problem.</p>
<h2>Global outliers</h2>
<p>Not all conservatives embrace market-based environmental policies, of course.</p>
<p>Republicans in the U.S. voted overwhelmingly <a href="https://insideclimatenews.org/news/19072018/anti-carbon-tax-resolution-house-vote-climate-solutions-caucus-curbelo-scalise-koch-influence-congress">against a proposed carbon tax in 2016</a>. Then-House Majority Whip Steve Scalise <a href="https://www.atr.org/overwhelming-majority-house-votes-oppose-carbon-tax">said</a> it would be “detrimental to American families and businesses.” </p>
<p>Australia’s conservative party, which won a <a href="https://theconversation.com/labors-election-loss-was-not-a-surprise-if-you-take-historical-trends-into-account-117399">surprise victory</a> in May’s national election, is <a href="https://www.forbes.com/sites/jamesellsmoor/2019/06/01/climate-change-australias-election-has-far-reaching-consequences/#7c4136b71e75">propelling the country backwards on climate</a>. A few years ago, they repealed a <a href="https://www.vox.com/world/2019/5/17/18628180/australia-election-2019-labor-liberal-party-morrison">2010 carbon tax</a>. Now the country’s new prime minister, Scott Morrison, is reducing the emission-reduction target Australia signed onto in the Paris climate accords and renewing <a href="https://www.theguardian.com/australia-news/live/2017/feb/09/bill-shorten-malcolm-turnbull-union-liberal-labor-politics-live">his government’s commitment to the coal industry</a>.</p>
<p>Brazil’s far-right President Jair Bolsonaro, too, has <a href="https://theconversation.com/amazon-fires-jair-bolsonaro-faces-mounting-political-backlash-in-brazil-even-from-his-allies-122512">rolled back his country’s strict environmental regulations</a>. That’s left the Amazon rainforest open to <a href="https://theconversation.com/amazon-fires-deforestation-has-a-devastating-heating-impact-on-the-local-climate-new-study-122914">deforestation</a> and <a href="https://theconversation.com/the-amazon-is-burning-4-essential-reads-on-brazils-vanishing-rainforest-122288">fire</a>.</p>
<p>The current governments of the United States, Australia and Brazil are global outliers who defy overwhelming basic economics and <a href="https://climate.nasa.gov/evidence/">overwhelming scientific evidence</a> that climate change is one of the <a href="https://www.nytimes.com/2018/03/29/climate/united-nations-climate-change.html">gravest risks facing humanity</a>. </p>
<p>From Jamaica to India, rightist leaders have shown confidence that with the right incentives companies can and will innovate to transform the economy in a more sustainable direction.</p>
<p>[ <em>Deep knowledge, daily.</em> <a href="https://theconversation.com/us/newsletters?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=deepknowledge">Sign up for The Conversation’s newsletter</a>. ]</p><img src="https://counter.theconversation.com/content/121685/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>In the past Jason Scorse has received funding from various environmental NGOs, including Natural Resources Defense Council, EarthJustice, and the Sierra Club for consulting work. </span></em></p>Conservatives worldwide favor carbon pricing, cap-and-trade systems and other innovative environmental plans – just not in the United States.Jason Scorse, Associate Professor, Chair, Director, MiddleburyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1156822019-04-17T23:26:30Z2019-04-17T23:26:30ZJason Kenney’s victory means we’ll all pay the price for fossil fuel emissions<figure><img src="https://images.theconversation.com/files/269911/original/file-20190418-28103-r29ful.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">blank</span> </figcaption></figure><p>Jason Kenney has led the United Conservative Party to victory in Alberta. There were <a href="https://www.cbc.ca/news/canada/calgary/ucp-rcmp-investigation-peter-singh-search-warrant-1.5100362">many</a> <a href="https://www.cbc.ca/news/canada/calgary/caylan-ford-resigns-ucp-candidate-1.5062198">objectionable</a> <a href="https://www.cbc.ca/news/canada/edmonton/ucp-mark-smith-drayton-valley-homosexual-1.5081799">components</a> to the UCP campaign. One of the most ominous was Kenney’s promise to fight for the continued subsidization of Alberta’s dying fossil fuel industry. </p>
<p>Of course, Kenney didn’t phrase it that way. </p>
<p><a href="https://calgaryherald.com/news/local-news/kenney-promises-carbon-tax-court-fight-by-end-of-april-if-he-wins-election">He promised to eliminate the carbon price tax implemented by Rachel Notley’s NDP government</a>. In fact, he pledged to Alberta voters <a href="https://edmontonjournal.com/news/politics/carbon-tax-on-the-block-as-kenneys-ucp-plans-rollbacks-in-first-100-days">it would be gone before the start of this summer’s Calgary Stampede</a>.</p>
<p>When Kenney eliminates the Notley government’s carbon tax, Alberta will then be subject to the federal carbon pricing plan.</p>
<h2>Conservatives unite</h2>
<p><a href="https://nationalpost.com/news/after-election-win-kenney-faces-long-court-battle-over-constitutionality-of-federal-carbon-tax">Kenney’s promise to fight the federal carbon tax aligns him with fellow premiers Doug Ford of Ontario, Blaine Higgs of New Brunswick and Scott Moe of Saskatchewan</a>, as well as federal Conservative Leader Andrew Scheer.</p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/269862/original/file-20190417-139088-xo62fw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/269862/original/file-20190417-139088-xo62fw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/269862/original/file-20190417-139088-xo62fw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=740&fit=crop&dpr=1 600w, https://images.theconversation.com/files/269862/original/file-20190417-139088-xo62fw.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=740&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/269862/original/file-20190417-139088-xo62fw.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=740&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/269862/original/file-20190417-139088-xo62fw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=930&fit=crop&dpr=1 754w, https://images.theconversation.com/files/269862/original/file-20190417-139088-xo62fw.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=930&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/269862/original/file-20190417-139088-xo62fw.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=930&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Screenshot of a mass text message from federal Conservative Leader Andrew Scheer and the author’s message in return. Scheer never responded.</span>
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<p>Scheer and his provincial counterparts, the most vocal opponents of Canada’s putting a price on carbon, are self-professed lovers of the free market. The <em>Wall Street Journal</em> recently cited Kenney’s expected victory as <a href="https://www.wsj.com/articles/canadas-texas-may-go-blueagain-11555368098">evidence of Albertans’ support for free markets</a>. Scheer, Kenney, Ford, Higgs and Moe are individualists who believe the market properly rewards hard work. They claim to want minimal government, especially in all things economic. </p>
<p>According to free market ideology, government action prevents markets from functioning optimally. Among the biggest targets of the ideology are subsidies. According to free market supporters, subsidies distort prices, sending buyers and sellers the wrong signals, producing inefficiencies. And yet, in the denunciation of carbon taxes, opponents are really demanding the maintenance of a subsidy.</p>
<p>Although the federal government is imposing a cost on emissions through a tax, it is properly thought of as a price. Currently, we freely dispose of carbon and other emissions when we burn fossil fuels.</p>
<p>A carbon tax puts a price on those emissions. In theory, it makes us cover the costs associated with emissions and alters our behaviour toward consumption with lower emissions. </p>
<h2>Markets are implicated in the climate crisis</h2>
<iframe src="https://ourworldindata.org/grapher/global-fossil-fuel-consumption" style="width: 100%; height: 600px; border: 0px none;" width="100%" height="400"></iframe>
<p>For millennia, humans have burned fossil fuels for energy. However, over the last two centuries, <a href="https://ourworldindata.org/fossil-fuels">the scale of fossil fuel use has increased dramatically</a>. A commensurate rise in emissions has resulted.</p>
<p>Remarkably early in this history, there were scientists suggesting this is a problem. The Swedish Nobel laureate Svante Arrhenius <a href="https://www.rsc.org/images/Arrhenius1896_tcm18-173546.pdf">argued in 1896</a> that carbon dioxide accumulation in the atmosphere could alter the Earth’s climate.</p>
<p>There is now effectively a <a href="https://climate.nasa.gov/scientific-consensus/">scientific consensus</a> that carbon and other emissions are dramatically altering our climate with a cascade of detrimental effects.</p>
<p>Fossil fuels offered a cheap, abundant and concentrated source of energy. However, cheapness was an illusion. Fossil fuel use was being subsidised by others.</p>
<p>Because the climate is global, the effects of climate change impose costs on people far removed in space from where the fossil fuels were burned. Because the effects of emissions take a while to emerge, they are imposing costs on people far removed in time from when the fossil fuels were burned.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/269866/original/file-20190417-139088-1rf0iza.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/269866/original/file-20190417-139088-1rf0iza.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=406&fit=crop&dpr=1 600w, https://images.theconversation.com/files/269866/original/file-20190417-139088-1rf0iza.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=406&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/269866/original/file-20190417-139088-1rf0iza.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=406&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/269866/original/file-20190417-139088-1rf0iza.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=510&fit=crop&dpr=1 754w, https://images.theconversation.com/files/269866/original/file-20190417-139088-1rf0iza.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=510&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/269866/original/file-20190417-139088-1rf0iza.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=510&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Ontario Premier Doug Ford, left, and United Conservative Leader Jason Kenney embrace on stage at an anti-carbon tax rally in Calgary in October 2018.</span>
<span class="attribution"><span class="source">THE CANADIAN PRESS/Jeff McIntosh</span></span>
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<p>One of the central ideological tenets of markets is that the beneficiary of a good also bears the cost of that good. </p>
<h2>Markets hide subsidy</h2>
<p>Every time we burn fossil fuels — whether to heat our homes or power our vehicles — and we do not pay to deal with the emissions, we are subsidized by those distributed in space and time who will pay in one way or another. Markets hid the subsidy with the low price paid for fossil fuels.</p>
<p>Most opponents of the carbon tax have accepted the science behind climate change, if grudgingly. Most even accept that it is caused by humans. Yet they refuse to recognize that markets are implicated in the crisis.</p>
<p>A carbon tax, as currently implemented by the federal government, is a bare minimum for addressing the climate crisis. The tax will have disproportionate effects on poor people and rural citizens. However, these should be addressed, as necessary, with targeted subsidies.</p>
<p>Explicit subsidies, on the books and subject to critical evaluation, are preferable to the clandestine subsidies to which carbon tax opponents feel entitled.</p><img src="https://counter.theconversation.com/content/115682/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>D.T. Cochrane does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Carbon pricing is the most market-based means of addressing the climate crisis, yet it is strongly opposed by politicians that claim to support free markets.D.T. Cochrane, Lecturer in Business and Society, York University, CanadaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1120602019-02-23T00:47:45Z2019-02-23T00:47:45ZEconomics needs to get real if we want more young Australians to study it<figure><img src="https://images.theconversation.com/files/260068/original/file-20190221-148523-ljife0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">If we want economics to appeal to young Australians, it needs to move away from theory and towards tackling some of the trickiest issues faced by the next generation.</span> <span class="attribution"><span class="source">www.shutterstock.com</span></span></figcaption></figure><p>When it comes to studying economics, Australian high school students are voting with their feet. According to data gathered by the Reserve Bank of Australia, year 12 enrolments in economics courses have <a href="https://www.abc.net.au/news/2018-06-13/rba-concerned-about-a-drop-in-economics-students/9865726">plunged 70% nationwide</a> over the last 25 years. Enrolments are so low, many schools are abandoning the subject altogether.</p>
<p>And it’s not just that there are fewer students taking economics. Those that do sign up seem rather … well … alike. There are now about <a href="https://www.rba.gov.au/speeches/2017/sp-so-2017-07-29.html">twice as many boys than girls</a> taking economics (compared to a 50-50 ratio in 1992). And most of those boys now come <a href="https://www.rba.gov.au/speeches/2017/sp-so-2017-07-29.html">from higher-income families</a>.</p>
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<a href="https://theconversation.com/women-are-dropping-out-of-economics-so-men-are-running-our-economy-74698">Women are dropping out of economics, so men are running our economy</a>
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<p><a href="https://www.rba.gov.au/speeches/2018/sp-so-2018-05-26.html">Economics enrolments</a> at universities haven’t done much better. The number of university students choosing economics has stagnated for a quarter-century, even as student numbers surged. They’re shunning economics in favour of other subjects: whether that’s popular science, technology, engineering and maths, and business programs or socially relevant disciplines such as political-economy and environmental studies.</p>
<p>If we really want more young Australians to study economics (and not just boys from high-income families), the profession needs to reinvent itself - and become a lot more relevant to the big issues young people care about.</p>
<h2>The problem with faith in the free market</h2>
<p>The Reserve Bank (RBA) <a href="https://www.theaustralian.com.au/national-affairs/education/focus-on-economics-rba-tells-schools/news-story/556d100126d3e226738e6cbdf2cda7b4">worries</a> about students’ lack of interest in economics, and has started a mini-campaign to encourage more young Australians to heed the call of supply and demand. The RBA is lobbying state governments to <a href="https://www.rba.gov.au/publications/submissions/education/submission-to-nsw-curriculum-review-november-2018/#fn*">update their economics curricula</a>, and it <a href="https://www.rba.gov.au/speeches/2017/sp-so-2017-07-29.html">sends ambassadors out to classrooms</a> to advocate for economics – emphasising, among other points, that economics graduates earn relatively high salaries.</p>
<p>We share the RBA’s concern about the terrible lack of diversity in economics (it’s one of the most male-dominated professions, <a href="https://www.rba.gov.au/speeches/2017/sp-so-2017-07-29.html">even worse than STEM courses</a>). But the RBA’s campaign inadvertently symbolises what’s wrong with the whole profession: emphasising high salaries in an attempt to reverse falling enrolments only confirms that economics is still infatuated with markets and incentives. This misses the whole point about the most urgent and interesting problems in the world today.</p>
<p>There is no question today’s students are a passionate, socially aware generation. <a href="https://www.abc.net.au/triplej/programs/hack/australian-attitudes-to-nature/9801778">They rightly worry</a> about the world they’re poised to inherit: scarred by climate change, inequality, angry populism, and possibly worse. Not to mention many of those students may never hold a <a href="https://www.futurework.org.au/the_dimensions_of_insecure_work">normal permanent job</a> (relegated instead to a never-ending series of “gigs”), and most can’t imagine being able to buy a house.</p>
<p>Given these critical challenges, we can’t blame today’s students for rushing into other disciplines – anything, it seems, but economics. After all, the social and environmental problems they confront are precisely the outcome of the <a href="https://www.aeaweb.org/conference/2016/retrieve.php?pdfid=405">ideological, market-worshipping canon still taught</a> in most economics textbooks.</p>
<p>Markets are efficient. Supply equals demand. Private competition is best. Workers are paid according to their productivity.</p>
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<strong>
Read more:
<a href="https://theconversation.com/how-governments-have-widened-the-gap-between-generations-in-home-ownership-82579">How governments have widened the gap between generations in home ownership</a>
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<p>Young people who want to improve the world quickly reject these tenets of economic theory. We, Jim and Richard, think students actually accomplish more to fix the actual economy by studying environmental studies, gender studies or social work, rather than immersing themselves in the theoretical games of free-market economics.</p>
<p>The RBA itself shares the blame for this state of affairs. Its narrow approach to economic policy is largely focused on suppressing inflation and letting markets take care of everything else. </p>
<p>For example, the RBA still claims Australia is almost at full employment. But they define that as <a href="https://www.rba.gov.au/publications/bulletin/2017/jun/pdf/bu-0617-2-estimating-the-nairu-and-the-unemployment-gap.pdf">5% unemployment</a>, according to the <a href="https://www.files.ethz.ch/isn/128239/fmsno00.pdf">discredited theory</a> of “non-accelerating inflation unemployment”. This neglects its responsibility, explicitly enshrined in the <a href="https://www.legislation.gov.au/Details/C2015C00201">Reserve Bank Act</a> to create more jobs as its top priority. </p>
<p>It’s a great intellectual irony that neoliberal economics, based on the theory that the market always knows best, is being abandoned by its own “market” (namely, prospective students). They are rejecting its idealised vision of supply and demand in favour of any number of more relevant, interesting disciplines: from business and marketing, to international relations or public health. </p>
<p>And the response of the discipline’s true believers is that its customers (the students) are somehow uninformed and don’t know what’s best for them.</p>
<h2>Economics needs context</h2>
<p>We both studied economics for many years, we love our profession, and we fervently hope more critical-thinking, passionate young people will take up this discipline – mostly to help us save the economy (and the planet) from conventional economics. But for economics to play a more helpful, critical role, it must thoroughly reinvent itself – and fast. </p>
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Read more:
<a href="https://theconversation.com/home-ownership-falling-debts-rising-its-looking-grim-for-the-under-40s-81619">Home ownership falling, debts rising – it's looking grim for the under 40s</a>
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<p>It must abandon its ideological and self-serving faith in the efficacy of private markets. It must embrace the social, historical, and environmental context of work, production, and distribution. And it must commit to truly building a better world, rather than justifying the status quo. </p>
<p>Apologising for inequality, selfishness, and pollution rather than confronting them has been the way of free-market economics since its invention. Most young people, understandably, yearn for something else. Let’s give it to them.</p><img src="https://counter.theconversation.com/content/112060/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jim Stanford is Economist and Director of the Centre for Future Work at the Australia Institute, and is a member of the Australian Services Union.</span></em></p><p class="fine-print"><em><span>Richard Denniss does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>For economics to play a more helpful, critical role, it must abandon blind faith in the free market and embrace the social, historical, and environmental context in which economics actually happens.Jim Stanford, Economist and Director, Centre for Future Work, Australia Institute; Honorary Professor of Political Economy, University of SydneyRichard Denniss, Adjunct Professor, Crawford School of Public Policy, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1071332018-12-13T11:42:13Z2018-12-13T11:42:13ZBrexit rooted more in elite politics than mass resentment<p>Thirty months after the <a href="https://www.bbc.com/news/uk-politics-32810887">British voted to exit the European Union, or the EU,</a> nobody knows where Brexit will end up. </p>
<p>Champions of the exit hoped to free themselves from the EU’s constraints – especially <a href="https://www.economist.com/britain/2018/09/20/how-to-bend-the-eus-rules-on-free-movement">requirements for open migration from Europe</a> – while maintaining access to its vast market. This proved impossible to negotiate with the EU. </p>
<p>So far, Britain’s government has only obtained a hodgepodge of half measures, negotiated by an increasingly weak Prime Minister Theresa May, that it appears <a href="https://www.npr.org/2018/12/10/675230990/u-k-can-still-back-out-of-brexit-if-it-wants-top-eu-court-rules">unable to pass through its own parliament</a>. </p>
<p><a href="https://www.nytimes.com/2018/12/12/world/europe/brexit-theresa-may-vote.html?emc=edit_na_20181212&nl=breaking-news&nlid=33503797ing-news&ref=headline">May survived a no-confidence vote on Wednesday</a>. Commentators everywhere will continue to parse out where the drama goes from here. <a href="https://scholar.google.com/citations?user=Ys5-ZMIAAAAJ&hl=en">As an expert on EU history</a>, however, I propose to step back for a moment. </p>
<p>How did we get here? What is Brexit’s significance for today’s politics? </p>
<h2>A global wave of nationalism?</h2>
<p>The driving idea behind the EU, <a href="https://europa.eu/european-union/about-eu/history_en">which was called the European Economic Community when it was created in the 1950s</a>, was to pacify Europe by integrating its economies. After two bloody world wars, Europeans hoped that eliminating barriers between countries and encouraging cooperation in common institutions would bring both economic vitality and lasting peace.</p>
<p>The EU has been working ever since to promote trade and mobility across Europe. Along the way it has developed remarkably powerful international institutions, not unlike a federal government. Today it can be seen as the avant-garde of globalization: the world’s most advanced experiment in open borders and international governance. </p>
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<img alt="" src="https://images.theconversation.com/files/250300/original/file-20181212-110231-156ow.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/250300/original/file-20181212-110231-156ow.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=453&fit=crop&dpr=1 600w, https://images.theconversation.com/files/250300/original/file-20181212-110231-156ow.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=453&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/250300/original/file-20181212-110231-156ow.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=453&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/250300/original/file-20181212-110231-156ow.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=569&fit=crop&dpr=1 754w, https://images.theconversation.com/files/250300/original/file-20181212-110231-156ow.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=569&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/250300/original/file-20181212-110231-156ow.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=569&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">The EU’s beginning: Delegates from France, Germany, Italy, Belgium, The Netherlands and Luxembourg, signing the Common Market Treaties in Rome, March 25, 1957.</span>
<span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/ASSOCIATED-PRESS-I-ITA-Eu-At-50/a0400d918c2b4a55ab7135a522b725c3/32/0">AP</a></span>
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<p>It is tempting, then, to read Brexit as the leading edge of a rising anti-globalization wave that seeks to restore national borders and sovereignty. That interpretation is especially enticing given the many parallels between the campaign for Brexit and the other earth-shaking, populism-fueled vote of 2016: the election of Donald Trump. </p>
<p>But if Brexit certainly manifests some widespread tensions about globalization, it is not clearly the result of a deep, broad, bottom-up wave of nationalist resentment. </p>
<p>In fact, not too long ago there were reasons to think Britain was becoming more comfortable with the EU, not less. <a href="https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1468-2346.2005.00480.x">Back in the 1990s</a>, it looked like Britain might consolidate its European role and seek to magnify its global influence through the EU. </p>
<p>At that point English was rapidly becoming <a href="https://www.politico.eu/article/french-english-language-brexit-european-parliament-ecj-commission-eu-next-waterloo/">Europe’s dominant language</a>. London had made itself <a href="https://www.citymetric.com/business/how-did-london-come-be-world-s-greatest-financial-hub-2729">Europe’s financial center</a>. The long-standing dominance of France and Germany in the EU was waning. The club was expanding to new members like Poland and Sweden who viewed the British as more natural allies. </p>
<p>The road to Brexit is arguably more a top-down tale of leaders and elite ideology than of an inexorable bottom-up wave of resentment. Certainly some latent resentment was there, with British public <a href="https://theconversation.com/polling-history-40-years-of-british-views-on-in-or-out-of-europe-61250">approval of ties to Europe waxing and waning over the decades</a>. But it took years of top-down encouragement and complex maneuvers among political elites to coalesce anti-European sentiment into the Brexit vote. </p>
<h2>Whither the Conservatives?</h2>
<p>Here is a quick version of that tale, drawing on my research with <a href="https://onlinelibrary.wiley.com/doi/full/10.1111/jcms.12205">political scientist Cary Fontana</a>.</p>
<p>The key process that shunted Britain toward Brexit was a battle over the direction of <a href="http://news.bbc.co.uk/2/hi/uk_news/politics/election_2010/8536227.stm">the Conservative Party</a> that began in the late 1980s. </p>
<p>The party’s competing views should be familiar to American Republicans today: Was conservatism primarily about opening up Britain to the world and fostering business opportunities? Or was it more about defending British sovereignty and a distinctive nationalist (and racial) identity? </p>
<p>For those who wanted to open up Britain to the world, it was a clear positive to belong to the European Community (EC, later renamed the EU). Indeed, Conservative Prime Minister <a href="http://www.nationalarchives.gov.uk/pathways/citizenship/brave_new_world/heath.htm">Edward Heath had led the U.K. into the EC</a>. The British liked to think that they invented free trade and modern diplomacy, and the EC followed their lead – aiming to open up markets across the continent and encourage cooperation. </p>
<p>What’s more, the Conservatives became especially enthusiastic about free markets in the 1980s, and so did the EC. <a href="https://multimedia.europarl.europa.eu/en/history-european-single-market_V001-0021_ev">In 1986 it adopted a profound “Single Market” plan</a> to eliminate all remaining barriers to intra-European trade.</p>
<p>But for those more interested in <a href="https://www.bbc.com/news/uk-politics-eu-referendum-35630757">defending sovereignty and nationalist identity</a>, the Community was a menace. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/250304/original/file-20181212-110234-1e4zkyw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/250304/original/file-20181212-110234-1e4zkyw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/250304/original/file-20181212-110234-1e4zkyw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/250304/original/file-20181212-110234-1e4zkyw.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/250304/original/file-20181212-110234-1e4zkyw.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/250304/original/file-20181212-110234-1e4zkyw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/250304/original/file-20181212-110234-1e4zkyw.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/250304/original/file-20181212-110234-1e4zkyw.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">EU Council meeting, June 2018. For some Conservative Party members in the U.K., EU institutions appeared to threaten British sovereignty.</span>
<span class="attribution"><a class="source" href="https://eu2018bg.bg/en/news/1416">European Union</a></span>
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<p>The EC could plausibly aspire to eliminate national-level trade barriers because it featured unusually strong international institutions, whose powers conflicted with the traditional British principle that nothing could supersede the authority of Parliament. It didn’t help that Britain’s old rivals, the French, tended to dominate EC politics. Some Conservatives saw the EC as a French plot to subjugate the continent. </p>
<p>The key mechanism that drove the Conservatives from free trade to nationalism has a name: <a href="https://www.nytimes.com/2013/04/09/world/europe/former-prime-minister-margaret-thatcher-of-britain-has-died.html">Margaret Thatcher</a>. </p>
<h2>A leader of contradictions</h2>
<p>An outspoken free-marketeer when she became the party’s leader in 1975, Thatcher nonetheless <a href="http://www.methuen.co.uk/bookdetails.aspx?title=Conflict%20of%20Loyalty&AspxAutoDetectCookieSupport=1">harbored strongly nationalist instincts</a>.</p>
<p>Into the mid-1980s, Thatcher mostly supported the move to increase connections to Europe and break down barriers to trade. </p>
<p>But as the <a href="https://ec.europa.eu/growth/single-market/strategy_en">Single Market plan</a> proceeded – which meant both eliminating trade barriers and boosting the EC’s authority over the European economy – she changed her mind. Open markets were not worth the loss of British sovereignty, Thatcher came to believe.</p>
<p>In 1990, just as British public support for EC membership <a href="https://theconversation.com/polling-history-40-years-of-british-views-on-in-or-out-of-europe-61250">hit its zenith</a>, Thatcher’s emerging skepticism culminated in a famous anti-European diatribe in Parliament.</p>
<p>Thatcher’s (“<a href="https://www.youtube.com/watch?v=Tetk_ayO1x4">No! No! No!</a>”) – in reaction to <a href="https://www.telegraph.co.uk/news/politics/margaret-thatcher/9980360/Margaret-Thatcher-Conflict-over-Europe-led-to-final-battle.html">EC calls for further increasing its own scope and authority</a> – convinced the party leadership to <a href="https://www.bbc.com/news/uk-politics-11598879">oust her</a>. More cosmopolitan Conservatives saw her as a liability.</p>
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<figcaption><span class="caption">Margaret Thatcher rejects greater control by Europe.</span></figcaption>
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<p>But striking down the Iron Lady made her more powerful than anyone imagined. </p>
<p>Thatcher’s long period of charismatic leadership had inspired a new generation of Conservatives in her mold. Her ouster over European debates led them to define skepticism about the EU (or “Euroscepticism”) as the litmus test of a true Thatcherite. </p>
<p>During the 1990s the Conservatives known as <a href="https://www.lrb.co.uk/v20/n24/ian-gilmour/hauteur">“Thatcher’s children</a>,” mounted a rising rebellion. When <a href="http://www.bbc.co.uk/news/special/politics97/news/05/0501/lead.shtml">their party was wiped out by Tony Blair’s Labour Party landslide in 1997</a> – limiting it to seats in Britain’s most conservative pockets – they took over. </p>
<h2>Careful what you wish for</h2>
<p>Thatcher’s children were never very successful. Several ham-fisted Eurosceptics led the party in electoral losses into the late 2000s. </p>
<p>Eventually the Conservatives recovered as Labor leader Blair’s popularity waned. Their moderate new leader, David Cameron, helped their return to power by working to convince his colleagues to stop “<a href="https://www.telegraph.co.uk/news/2016/06/24/david-cameron-the-man-who-wanted-the-tories-to-stop-talking-abou/">banging on about Europe</a>.” </p>
<p>Once in power after 2010, though, Cameron faced both an internal nest of arch-Eurosceptics and the <a href="https://www.bbc.com/news/uk-politics-21614073">rabidly anti-EU U.K. Independence Party</a> under Nigel Farage. </p>
<p>To quiet them, Cameron promised a referendum on EU membership after the 2015 election. He took a conscious risk: Like everyone else, <a href="https://www.politico.eu/article/how-david-cameron-lost-brexit-eu-referendum-prime-minister-campaign-remain-boris-craig-oliver-jim-messina-obama/">Cameron expected that economic interests would ensure a win for “Remain,</a>” (a vote to stay in the EU) over “Leave” (voting to leave the EU – known now as “Brexit”).</p>
<p>But referendums are notoriously unpredictable. </p>
<p>Twenty-five years of Thatcherite disdain for Europe had cultivated considerable support. <a href="https://www.independent.co.uk/news/uk/home-news/brexit-latest-news-eu-referendum-media-coverage-acrimonious-divisive-report-kings-college-a7727716.html">Certain elements in the British press</a> also stoked anti-European and anti-immigrant sentiments. The wild card was a brilliant political prodigy, Dominic Cummings, who shepherded the “Leave” campaign to a narrow victory that he himself thought <a href="https://blogs.spectator.co.uk/2017/01/dominic-cummings-brexit-referendum-won/">highly improbable</a>. </p>
<p>Given that Eurosceptics themselves expected to lose – and had no coherent plan to implement a withdrawal from the EU’s complex rules — the failing negotiations for Britain’s formal exit of the EU since then are no surprise.</p>
<h2>Glimmers of hope?</h2>
<p>This top-down story doesn’t make the Brexit story less worrisome. </p>
<p>Even if it showcases less bottom-up nationalism than most people assume, the British voted in favor of Brexit. Some sort of departure from the EU is still likely. Like most experts, I think that will be bad news for Britain, Europe and the world. </p>
<p>British people will have <a href="https://www.cnbc.com/2018/09/17/all-likely-brexit-outcomes-will-cost-the-uk-economy-imf-warns.html">less favorable external economic relationships</a> and <a href="https://www.telegraph.co.uk/politics/2018/11/30/tory-minister-sam-gyimah-resigns-protest-theresa-mays-withdrawal/">less political influence</a>. The U.K. itself may <a href="https://www.theguardian.com/politics/2018/oct/06/snp-could-back-second-brexit-referendum-tied-to-independence-vote">break into pieces</a>. Scottish voters largely opposed Brexit, and it may nudge them to vote for their own independence.</p>
<p>More broadly, nationalist choices can be self-fulfilling prophecies: They close borders, weaken cooperation, provoke nationalism elsewhere. They may thus produce the threatening world that they feared.</p>
<p>Still, I think this story hints at longer-term optimism. </p>
<p>Much of what many take today as historic shifts are not as deep and inexorable as they may seem. The politics of Brexit, like the similar politics of Donald Trump, do reflect major tensions in our world today – but not their unavoidable consequences. If aggressive minorities and odd contingencies do not lead us too far down costly paths, reasonable responses and better leadership can hopefully put things right.</p><img src="https://counter.theconversation.com/content/107133/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Craig Parsons does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The history of Britain’s vote to exit from the European Union, known as Brexit, is not a tale of populist resentment toward globalization. It is a top-down story of leaders and elite ideology.Craig Parsons, Professor of Political Science, University of OregonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/985602018-07-04T04:03:49Z2018-07-04T04:03:49ZMarket v government? In fact, hybrid policy is the best fit for the 21st century<p>Politics remains mired in ideological preconceptions of what is optimal, often landing us with bad policy. Too often we see a simplistic and false dichotomy between partisan claims that markets are the best policy tool because they are efficient, or that government should lead because this ensures equity. This is a major drag on our progress and prosperity because today’s policy challenges typically require hybrid policy solutions: sophisticated combinations of government and market tools that promote equity and efficiency at the same time.</p>
<p>The 20th century can be seen as a process of trial and error through which we came to understand where governments or markets were more appropriate. Libertarian, free-market capitalism collapsed in the Great Depression. The welfare state, in which government sensibly intervened to overcome market failures in sectors like health care, <a href="https://www.project-syndicate.org/commentary/labor-saving-technology-by-dani-rodrik-2015-01?barrier=accesspaylog">saved capitalism from itself</a>. </p>
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<a href="https://theconversation.com/not-for-profits-must-adapt-as-one-arm-of-governments-three-sector-solutions-72971">Not-for-profits must adapt as one arm of government's 'three-sector solutions'</a>
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<p>But, far from being a perfect system, the social democratic welfare states of the post-war years terminated in the horrors of stagflation: rising unemployment and inflation amid torpid economic growth. To overcome this, structural adjustment was needed to bring markets back into areas of policy where they had a comparative advantage. </p>
<p>Welfare states rolled back tariffs, price controls, subsidies and other distortions. They deregulated many markets to encourage open competition and the productivity improvements it brings. </p>
<p>This resulted in prolonged economic growth around the world from the mid-1980s until the Global Financial Crisis. It also accelerated growth in poor countries throughout Asia, dramatically reducing poverty and improving living standards.</p>
<h2>Taking account of winners and losers</h2>
<p>A key factor in the long-term success of structural adjustment was whether the governments prosecuting it considered the compensation of losers from reform.</p>
<p>France and Japan had a strong focus on potential losers from change. Consequently, structural adjustment never took place. The state continued to dominate the policy space, and the <a href="https://www.ft.com/content/5a6c1646-f6c0-11e7-88f7-5465a6ce1a00">French</a> and <a href="https://www.bbc.com/news/business-42154516">Japanese</a> economies stagnated.</p>
<p>In America and Britain, structural adjustment took place under neoliberal regimes (Reagan and Thatcher). These were ideologically committed to markets even where government had a clear role to play. Growth took off, but the gains overwhelmingly went to the privileged. Marginalised citizens saw their prosperity continue to flat-line.</p>
<p>As growth was not invested in mobility in the form of schools, hospitals and infrastructure, the losers from change were never reactivated. Today large portions of American society struggle with <a href="https://www.brookings.edu/opinions/americas-two-most-troubled-sectors-health-and-education/">limited health and education</a>. They have low productivity and low wages: a waste of human resources. And, as we’ve seen in recent elections, they are very angry about it.</p>
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<a href="https://theconversation.com/how-gross-inequality-and-crushed-hopes-have-fed-the-rise-of-donald-trump-62837">How gross inequality and crushed hopes have fed the rise of Donald Trump</a>
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<p>In Australia, Denmark and Canada, among others, structural adjustment was undertaken in a way that reaped the benefits of liberalisation while compensating losers from change. These countries put themselves on a long-term path that ensured both competition and opportunity by exploiting complementarities between markets and government.</p>
<h2>The hybrid policy paradigm</h2>
<p>Competition and opportunity are mutually beneficial. Competition in the absence of opportunity results in incumbents reaping the benefits of open markets. This is not because they are the most meritorious, but because they are in the right position. The resources of the underclass go underutilised, which is both unfair and inefficient. </p>
<p>Similarly, egalitarian policy settings without open competition lead to the dominance of insiders like belligerent unions at the expense of outsiders. This is evident in staggering levels of <a href="http://ec.europa.eu/eurostat/statistics-explained/index.php/Unemployment_statistics#Youth_unemployment">youth unemployment in France</a> and <a href="https://japantoday.com/category/features/opinions/temp-workers-helping-or-hurting-japans-future">workforce casualisation in Japan</a>. </p>
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<span class="attribution"><a class="source" href="https://www.routledge.com/Hybrid-Public-Policy-Innovations-Contemporary-Policy-Beyond-Ideology/Fabian-Breunig/p/book/9780815371809">Routledge (2018)</a></span>
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<p>Australia’s structural adjustment was begun in the twilight years of the Fraser government, prosecuted in earnest by Hawke and Keating and wound down by Howard. It has brought about several decades of growth with barely a budge in <a href="https://theconversation.com/heres-why-its-so-hard-to-say-whether-inequality-is-going-up-or-down-81618">our Gini coefficient</a> (a measure of inequality). We distil some of the lessons of this period in our new <a href="https://www.routledge.com/Hybrid-Public-Policy-Innovations-Contemporary-Policy-Beyond-Ideology/Fabian-Breunig/p/book/9780815371809">book on hybrid policy design principles</a>.</p>
<p>Australia’s structural reform was largely driven by a range of hybrid policies. These included the HECS system of higher education financing, our mixed public and private health system, and our unusually <a href="https://theconversation.com/election-factcheck-qanda-is-australia-among-the-lowest-taxing-countries-in-the-oecd-59229">low-taxing</a> but <a href="http://insidestory.org.au/the-budget-fairness-and-class-warfare/">highly targeted welfare system</a>. The result is a quality social safety net without unnecessary drag on the economy. </p>
<p>Each of these policies brings to bear the strengths of governments and markets in tandem. This hybrid approach overcomes their respective weaknesses and ensures outcomes that both sides of politics can feel proud of.</p>
<p>The HECS system replaced a prohibitively expensive free-tuition university system. Most university graduates go on to earn middle-class incomes, so why should taxpayers who didn’t attend university subsidise this? The HECS system includes a small subsidy to price in the broader benefits to the nation associated with education that go beyond the private benefits to the individual student.</p>
<p>Ironically, including some tuition charges actually enhanced equality of opportunity by making it easier to scale up university admissions. </p>
<p>Having the government act as the provider of loans to cover tuition fees overcomes the adverse selection issues that result in private markets undersupplying student loans, as in the United States. Some academically borderline students are a risky bet for private loans because they might default. But, as a group, many of these students would graduate if given the chance and earn higher incomes. They would then pay more tax. </p>
<p>Through the HECS system, the government provides loans to all of these students. And, via those higher tax payments, it is then able to recover some of its losses from defaults. This efficiently promotes equality of opportunity.</p>
<p>Finally, making loan repayments income-contingent ensures equity, especially for at-risk individuals like mothers who don’t return to the workforce for many years.</p>
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<h2>Grounded in evidence</h2>
<p>It is important to understand that hybrid policy designs are grounded in a rich body of theory and evidence. Our empirical understanding of the impacts of incentives, institutions and regulations on economic behaviour has grown tremendously in recent decades. So, too, has our ability to monitor the impact of individual policies and institutional or regulatory settings. </p>
<p>We no longer need to rely on ideological conviction when choosing between different policy tools because we actually know what works in a lot of cases. We can further reduce our need to rely on conviction by attaching evidence-collection measures to policies as they are implemented. </p>
<p><a href="https://theconversation.com/randomised-control-trials-what-makes-them-the-gold-standard-in-medical-research-78913">Randomised controlled trials</a>, for example, are being widely utilised to test the efficacy of different policies. This ensures poor policy designs are identified and discarded while effective ones are scaled up. </p>
<p>Well-designed policy implementation combined with detailed administrative data can allow us to evaluate programs even in the absence of randomised controlled trials. We have a wealth of tools at our disposal.</p>
<p>Politicians can sometimes fear evidence in public policy because of its ability to disprove their sacred truths. But the effect of evidence-based public policy is not to eject normative issues from governance. Instead, it focuses normative debate on normative questions like the appropriate balance between efficiency and equity. That leaves technical and factual matters to be decided on the basis of knowledge rather than belief.</p>
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Read more:
<a href="https://theconversation.com/mounting-housing-stress-underscores-need-for-expert-council-to-guide-wayward-policymaking-84196">Mounting housing stress underscores need for expert council to guide wayward policymaking</a>
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<h2>Challenges call for renewed reform</h2>
<p>Australia is in desperate need of a fresh round of hybrid policy reform. By the end of the 20th century we had exhausted the gains from marginally improving where government and markets are used individually in policy settings. </p>
<p>The challenges we face today include making the most of the internet and automation, and responding to climate change, tax reform and urban and demographic change, to name a few. All require hybrid thinking to understand and solve.</p>
<p>Australia was a pioneer of this in the past. Many of our systems remain at or near world best even as we have lost focus on policy reform. We can reclaim our leadership position by applying evidence-based hybrids.</p><img src="https://counter.theconversation.com/content/98560/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>From the 20th-century process of policy trial and error, the nations that married the strengths of markets and government came out ahead.Mark Fabian, Postgraduate student, Australian National UniversityRobert Breunig, Professor of Economics and Director, Tax and Transfer Policy Institute, Crawford School of Public Policy, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/744412017-03-13T22:22:45Z2017-03-13T22:22:45ZWhy the free market hasn’t slashed power prices (and what to do about it)<p>The energy sector was supposed to be the showcase for privatisation and market deregulation. Yet in 2017, this premise is being sorely tested – no more so than in electricity retailing, where competition has failed to deliver on its promise of lower prices for customers.</p>
<p>The latest Grattan Institute report, <a href="https://grattan.edu.au/report/price-shock/">Price shock: Is the retail electricity market failing consumers?</a>, provides evidence that in the electricity retail sector, the anticipated price reductions have not happened, and innovation has been very slow in coming. </p>
<p>On the contrary, the markets with the least regulation have the highest prices. Australia’s experience is mirrored in the UK, the United States and Canada, and all are struggling to find solutions.</p>
<h2>Mixed success</h2>
<p>The privatisation of Australia’s electricity retail markets dates back to the 1993 <a href="https://www.australiancompetitionlaw.org/reports/1993hilmer.html">Hilmer Report on national competition policy</a>. The ensuing decade saw a raft of reforms that initially delivered increases in productivity, lower prices and business innovation. But in the decade after that, this progress became much harder to sustain.</p>
<p>The idea was for states to create regulated monopolies in electricity transmission and distribution (poles and wires), while deregulating the retail side (the supply of gas and electricity to customers). </p>
<p>The competition in electricity generation largely delivered lower wholesale prices through the <a href="https://theconversation.com/au/topics/national-electricity-market-2810">National Electricity Market</a> (NEM). But a mess has since been created by poor or absent climate policy at a federal level, which failed to match the enthusiasm of (some) states for clean energy. The resulting surge of investment in wind and solar happened without due consideration of the consequences for security and reliability of supply. Generating more renewable energy is essential, but failing to integrate it properly with the NEM was negligent.</p>
<p>Meanwhile, in Victoria – the state with most electricity retailers and the longest history of full competition – retail prices have been increasing without apparent justification and retail margins are higher than they should be. The cost to Victorians could be as much as A$250 million a year. </p>
<h2>Lazy customers?</h2>
<p>Customers are unhappy, and yet we are not seeing a surge of consumer action to get the best deals. So if it’s just a matter of lazy consumers, why should governments care? </p>
<p>Part of the answer to this conundrum lies with the product and its relationship with consumers. First, electricity is an essential service that underpins our daily lives, and switching off is not a realistic option for most consumers. </p>
<p>Second, the products offered by retailers are often complex and the advertising is confusing, if not downright misleading. It is hardly surprising that consumers feel stuck and eventually give up trying to find the best deal, when all too often an advertised 30% discount on their electricity bill doesn’t necessarily mean their bills will be 30% cheaper.</p>
<p>So far there have been few genuine innovations in electricity pricing – even in Victoria which has had full deregulation since 2009. The most common tactic has been a discount for paying on time or by direct debit, although consumers are often frustrated when they discover that at the end of their contract they lose the discount even if they continue to pay the same way. </p>
<p>Meanwhile, products that offer different prices for electricity use at different times of the day have been slow to appear. These products have the potential to deliver major savings, yet the industry has failed to deliver them in a way that makes them easy for customers to understand and adopt.</p>
<h2>What to do</h2>
<p>When faced with a market failure, governments should consider action. Yet, as with the Australia’s domestic gas market and South Australia’s power “crisis”, they should proceed with caution. </p>
<p>In Britain, the partial re-regulation of retail electricity competition delivered unexpected and perverse outcomes, such as the removal of the cheapest deals. A move to re-regulate prices here could stifle emerging innovation, and would most likely leave some consumers worse off without the guarantee of a better outcome overall. We seem to be driven to a choice between free markets and central planning. Yet neither is a panacea. </p>
<p>There are government interventions that could fix the worst problems without stifling effective competition. They include requiring clearer and simpler advertising, and more transparent and fairer contracts. Requiring retailers to provide data on their profit margins to an independent agency could also help, and could even be in the best interest of the retailers if it fends off more heavy-handed regulation. </p>
<p>The retail electricity market may be fixable, and the benefits of competition may ultimately exceed its costs. We may yet see fairer prices and real innovation. But if not, governments will have no choice but to return to price regulation. The electricity retailers who are used to the current free market certainly won’t want that.</p><img src="https://counter.theconversation.com/content/74441/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Tony Wood owns shares in several energy and resources companies through his superannuation fund</span></em></p>Electricity retailers need to make their prices and offers more transparent and easier for customers to understand, or risk having to submit to price regulation to drive down bills.Tony Wood, Program Director, Energy, Grattan InstituteLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/714832017-01-18T23:53:04Z2017-01-18T23:53:04ZIs 2017 the year to ditch the term ‘innovation’?<p>With the <a href="http://www.pm.gov.au/media/2017-01-18/press-conference-changes-ministry">appointment of Arthur Sinodinos as minister for industry, innovation and science</a> in the cabinet reshuffle, Australia can look forward to more government promotion of innovation and entrepreneurialism. </p>
<p>Yesterday Sinodinos released a <a href="https://twitter.com/political_alert/status/821559286866137089">statement</a> about his appointment, reaffirming his “keen appreciation of the importance of science and innovation policies”, and his view that innovation emerges when government steps back and allows “workers, entrepreneurs and risk takers [to be] at the centre of the economy”. </p>
<p>This chimes with Sinodinos’ <a href="http://arthursinodinos.com.au/media/101939/Sinodinos-News-Issue-11-WEB.pdf">previous statements</a> on the importance of innovation in the Australian economy: </p>
<p><em>“I have often said that Australia has an imperative to innovate. … It’s no longer just an interesting phenomenon – it’s an everyday reality. No area of society can be insulated from it.”</em></p>
<p>By framing market-led innovation as an inevitable way of helping the economy, Sinodinos effectively shrugs off any direct responsibility for government involvement, instead putting the onus on entrepreneurs.</p>
<p>While the language of innovation may have once soothed fears and inspired confidence, the term’s overuse means it now operates as clichéd husk – a fashionable accessory that politicians begrudgingly don when they want to convey a particular message. </p>
<p>So is it time we ditch the term and be done with it? Perhaps, but bear this in mind: innovation is now formally embedded in Australian government policies in relation to trade, science, employment and research. We will be dealing with the consequences of these policies for years to come.</p>
<p>The <a href="http://www.innovation.gov.au">National Innovation and Science Agenda</a> states that: </p>
<blockquote>
<p>“Innovation is important to every sector of the economy – from ICT to healthcare, education to agriculture, and defence to transport. Innovation keeps us competitive. It keeps us at the cutting edge. It creates jobs.”</p>
</blockquote>
<p>This is an extraordinary statement because it places great faith in one particularly nebulous concept. </p>
<h2>Meaningless spin or dangerous ideology?</h2>
<p>While it suits government to be vague about innovation’s meaning, a plethora of academic disciplines have worked hard to specifically define it and explain how it can be achieved. Unfortunately this has actually resulted in an even broader collective understanding of innovation. Put simply, innovation is often defined as <a href="http://www.springer.com/gp/book/9781447165897">successfully applied ideas</a> (and the concept is no longer limited to technological change). </p>
<p>But innovation is more than a harmless catch-all term. It could actually do great damage. This is because the most influential interpretation of innovation remains tied to free market economics.</p>
<p>In Australian politics, innovation specifically operates as code for economic efficiency and entrepreneurship, and its use naturalises a way of thinking that valorises profit-making over other social, ethical and environmental considerations. It also operates as a handy excuse for government to step back and allow the market to dictate outcomes. </p>
<p>Take for example the <a href="https://industry.gov.au/Office-of-the-Chief-Economist/Publications/Pages/Nat-Innovation-Map.aspx">National Innovation Map</a>, which records instances of entrepreneurship and business activity (for example: new businesses, patents, research and development expenditure). This understanding of innovation does not capture the activities of not-for-profit initiatives, community groups, much of the arts, and a great deal of critical and scientific research. </p>
<p>For example, a startup company that sells plastic mobile phone covers would be understood as “innovation”, but the activities of <a href="http://makerspace.org.au">Makerspace & Company</a>, <a href="https://www.freecycle.org/browse/AU">Freecycle</a> or <a href="http://www.orangeskylaundry.com.au">OrangeSky Laundry</a> (to name but a few) would likely be left out. Makerspace & Company is a space where people can access tools, machinery and training in industrial design skills. Freecycle is a grassroots movement of people who reuse and distribute resources in local communities. OrangeSky Laundry provides shower and laundry services to homeless people. </p>
<p>With so much emphasis on entrepreneurship, a great deal of positive human activity is easily ignored and left unsupported. </p>
<h2>The problem with disruptive innovation</h2>
<p>As innovation scholar <a href="https://www.routledge.com/Innovation-Contested-The-Idea-of-Innovation-Over-the-Centuries/Godin/p/book/9780415727204">Benoît Godin states</a>, the current positive understanding of innovation is relatively new. In the Middle Ages, to be an innovator meant questioning religious doctrine, a heretical act.</p>
<p>For much of the seventeenth and eighteenth centuries the term was intended as an insult. Innovators were excessive and evil. </p>
<p>Harvard economist Joseph Schumpeter is often credited with bringing innovation into a positive category. Schumpeter’s work on “creative destruction”, published in the early 1940s, tied innovation to the idea of getting products onto the market. </p>
<p>Clayton M. Christensen drew upon Schumpeter to develop his own concept of
“<a href="http://www.claytonchristensen.com/key-concepts/">disruptive innovation</a>” in the early 1990s. Christensen’s version of innovation involves the utter disturbance of the status quo. </p>
<p>Startups sneak in, new products are constantly released, destroying whole industries and opening new markets. Disruptive innovation was snapped up with enthusiasm, first by Silicon Valley, then by the broader business community.</p>
<p>Disruptive innovation does not play by the rules. In its relentless push forward, whole categories of jobs, identities, social structures and technologies are abandoned without a thought. </p>
<p>Is this the exciting future that the Australian government has in mind? </p>
<p>If we take Sinodinos at his word, then yes. Sinodinos <a href="http://www.dailytelegraph.com.au/news/opinion/we-should-fear-the-past-not-the-future/news-story/0c8d4dc7607666b65ad6db66a587ee02">has argued that</a>:</p>
<blockquote>
<p>“We live in an era of disruption. Think of innovative disruptors like Uber and Airbnb. Disruption is our friend. It undermines markets dominated by monopolies or a few big firms and empowers small business and consumers. … These businesses overwhelmingly invest in Australia and employ locals.”</p>
</blockquote>
<p>The notion that multinational corporations such as Uber and Airbnb are small businesses (who create large numbers of local full-time jobs) is highly questionable. But beyond that, this quote points to a deeper problem at the heart of the government’s faith in innovation. </p>
<p>When we hear that up to <a href="http://www.ceda.com.au/2015/06/16/five-million-Aussie-jobs-gone-in-10-to-15-years">40% of Australian jobs could disappear in the next 10 to 15 years</a>, the most predictable solution is that innovation will be “critical to generating the jobs of the future” (repeated during Prime Minister Malcolm Turnbull’s <a href="https://www.pm.gov.au/media/2017-01-18/press-conference-changes-ministry">announcement of the 2017 Cabinet</a>). </p>
<p>But under the market logic of innovation, organisations are encouraged to embrace new technologies, to restructure, to hire “flexible” labour, and to relocate. Any negative impacts stemming from these changes (for example business failure, job losses) are easily explained as the result of too little innovation. It’s this line of thought that led to the gutting of the CSIRO, where <a href="https://cpsu-csiro.org.au/2016/12/20/tumultuous-times-2016-in-review/">20% of jobs have disappeared over the past two years</a>, including some of the nation’s best research scientists. </p>
<p>With this kind of circular thinking, perhaps it is time for innovation to regain its former bad reputation.</p>
<h2>What are the alternatives?</h2>
<p>This is not a call for the complete abandonment of innovation, as a word or a practice. After all, there is nothing inherently wrong with the desire to make things better.</p>
<p>But innovation’s ideological connection to free market economics, and the contradictory manner in which it is hurled at all manner of problems, means that it cannot and should not operate as the only way to transform our society and its institutions. </p>
<p>One thing we can be sure of: the future will bring extreme environmental, social and economic challenges. Yes, innovation will help us survive. But here are a few less fashionable verbs we must embrace: maintain, rebuild, care, reform, tolerate, make, salvage, repurpose, help and repair.</p><img src="https://counter.theconversation.com/content/71483/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jesse Adams Stein does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>New minister Arthur Sinodinos seems all for the innovation catch-cry but perhaps it’s time he dropped it.Jesse Adams Stein, Chancellor's Postdoctoral Research Fellow, Faculty of Design, Architecture & Building, University of Technology SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/690452016-11-23T01:48:44Z2016-11-23T01:48:44ZWhy Trump is right, and wrong, about killing off the TPP<p>President-elect Donald Trump is right: The <a href="https://ustr.gov/tpp/#what-is-tpp">Trans-Pacific Partnership</a> (TPP) is a damaging deal and deserves to be killed off. </p>
<p>But he tells a half truth about why the trade accord among a dozen Pacific Rim nations is a bad deal. In <a href="https://www.donaldjtrump.com/policies/trade">Trump’s view</a>, trade agreements like NAFTA <a href="http://www.ontheissues.org/2016/Donald_Trump_Free_Trade.htm">have allowed</a> developing countries to “steal” American manufacturing jobs and decimate the well-waged middle class. This is why he says that America should reject the TPP. </p>
<p>But shifting the blame for American joblessness and stagnant incomes obscures the more complex, largely home-grown pressures that led U.S. companies to offshore manufacturing production to low-wage jurisdictions. Promising to tear up certain trade deals and impose tariffs on imports (chiefly from China and Mexico) will do very little if anything to reverse the problem. </p>
<p>The real problem is that these agreements don’t actually do enough to support freer trade. We’ve been studying <a href="http://www.tandfonline.com/toc/caji20/69/5">trade agreements</a> and the political foundations of industrial competitiveness in the <a href="http://www.cornellpress.cornell.edu/book/?GCOI=80140100092170&fa=author&person_id=3129">United States</a>, <a href="http://www.cornellpress.cornell.edu/book/?GCOI=80140100263420&fa=author&person_id=5308">East Asia</a> and beyond - for decades. We have witnessed how so-called “free trade deals” have become less and less about opening markets and more about entrenching monopolies. Australia, where we’re based, is also a member of the proposed TPP and, like America, stands to benefit from the deal’s abandonment. </p>
<h2>Who’s really to blame for America’s manufacturing decline?</h2>
<p>When Trump <a href="http://www.politico.com/story/2016/06/trump-jobs-plan-224892">blames globalization</a> for having “wiped out our middle class,” he misses the point that the main actors behind successive waves of globalization since the 1990s have been U.S. corporations themselves. And when Trump blames China (or Mexico) for stealing American jobs, he misses the point that it is U.S. companies that have been most aggressively downsizing their labour force and distributing production abroad. </p>
<p>Blame shifting also misses the point. It’s American corporations themselves, the key drivers of globalization (which have been the chief beneficiaries of this “downsize and distribute” approach) racking up “super profits” from what is effectively rent-seeking. They do this by exploiting - and aggressively seeking to extend - generous monopoly rights granted to them through intellectual property laws. </p>
<p>While Trump rails against America’s growing trade deficit with China, the reality is that the <a href="https://ustr.gov/countries-regions/china-mongolia-taiwan/peoples-republic-china">largest category</a> of imports from that country (about 28%) is electrical equipment (for example information technology (IT) products) very often generated (designed, outsourced or contracted) by U.S. companies. These companies, like Apple, hold the patents, copyright and trademarks. </p>
<p>This has paved the way for some serious distortions in <a href="http://onlinelibrary.wiley.com/doi/10.1111/isqu.12053/abstract">accounting</a>. For example, <a href="https://www.adb.org/publications/how-iphone-widens-united-states-trade-deficit-peoples-republic-china">recent research</a> has shown that the full value of the sale of iPhones in the United States (which are assembled in China) are counted against China’s trade deficit with America. </p>
<p>In reality, China contributes only around 3.6% of the value of iPhone sales in parts and labor, itself importing the remainder of the more (and less) technologically advanced parts (from Japan, Germany and South Korea and beyond). U.S. companies contribute only 6% to the total parts and labor of an iPhone, but Apple takes the lion’s share of the final sale price thanks to its patent and trademark ownership. </p>
<p>So when an iPhone sells in the United States for about $500, <a href="http://www.frbsf.org/economic-research/publications/economic-letter/2011/august/us-made-in-china/">only $159 of this reflects content imported from China</a>). The rest goes to American firms. And while that $159 is counted against China’s deficit with the United States, China itself only accounts for $6.50 of that value. </p>
<p>Seen in this light, we should not be surprised that 55% of the price U.S. consumers pay for goods imported from China <a href="http://www.frbsf.org/economic-research/publications/economic-letter/2011/august/us-made-in-china/">actually goes to U.S. companies</a>. Following from this, were Trump to make good on his promise to slap tariffs on imports from China, this would effectively penalize many U.S. companies. </p>
<p>The related problem is that decades of downsizing the manufacturing workforce and moving production overseas have gradually denuded America’s industrial ecosystem whereby the networks of equipment makers, suppliers and manufacturers needed to turn innovative ideas into products are disappearing. As <a href="http://www.cornellpress.cornell.edu/book/?GCOI=80140100092170&fa=author&person_id=3129">one of us has shown in research</a>, extreme offshoring is not only undermining skilled employment in the U.S. but also putting at risk the innovation that has underpinned American technological dynamism since the end of World War II. </p>
<p>Consequently, it’s increasingly difficult to find workers with the skills necessary to make the technologically sophisticated goods associated with the better-paid jobs of yesteryear. For example Silicon Valley, the home of most U.S. technology companies, is now a misnomer since very few semiconductors, which are primarily made of silicon, are produced there. Indeed, a more appropriate name today would be “App Valley” – and apps are not exactly the basis for a vibrant economy. </p>
<h2>So why abandon the TPP?</h2>
<p>Here’s where free trade deals do come into it. </p>
<p>Successive American administrations have further reinforced this extreme downsizing process by pushing trade agreements like the TPP that pay lip service to market access (free trade). In reality, these agreements entrench monopolies and tie the hands of governments that would otherwise take a more proactive approach to building new advanced industries and upgrading existing ones with new technology. </p>
<p>The creation of the World Trade Organization in 1995 marked the first major shift in international trade deals away from those that prioritize freer market access and towards those that entrench monopolies through the award of generous intellectual property provisions – even at the expense of economic and social goals like encouraging innovation and protecting human health. </p>
<p>Subsequent reforms to the WTO’s intellectual property agreement (for example the <a href="https://www.wto.org/english/tratop_e/trips_e/trips_e.htm">trade-related aspects of intellectual property rights</a>) gave governments at least some scope to redress the organisation’s most <a href="https://www.wto.org/english/tratop_e/trips_e/techtransfer_e.htm">economically</a>) and <a href="https://www.wto.org/english/news_e/pres03_e/pr350_e.htm">socially</a> distorting impacts. And the WTO’s <a href="https://www.wto.org/english/tratop_e/dda_e/dda_e.htm">Doha round of trade negotiations</a> sought (albeit unsuccessfully) to focus attention on the primary issue of trade liberalization rather than further extending monopoly rights. </p>
<p>But the improvements being made at the WTO level are sorely missing from most bilateral and regional trade deals, especially those being driven by the U.S. Many of these - from the <a href="http://dfat.gov.au/trade/agreements/ausfta/pages/australia-united-states-fta.aspx">Australia-U.S. Free Trade Agreement</a> to the now defunct TPP – have sought to further extend the monopoly rights of IP-protected firms. These are the very corporate actors that most aggressively pursue the “downsize and distribute” approach.</p>
<p>From Apple and Dell in the IT space to Pfizer and Merck in pharmaceuticals and Nike and Gap in clothing, America’s patent, copyright and trademark-rich businesses reap major rewards for their shareholders by aggressively reducing labor costs through outsourcing. They also do it through extracting monopoly rents from their patented and trademarked technologies and designs. As <a href="http://www.rsfjournal.org/doi/full/10.7758/RSF.2016.2.6.11">recent research</a> revealed, this also has major, negative implications for corporate investment and wage levels in the United States. </p>
<h2>A better approach to trade</h2>
<p>Obviously, the promotion of rent-seeking by entrenching monopoly rights has nothing to do with free trade. But the reality is that, for the United States at least, this has become a primary goal of its “free trade” agreements. </p>
<p>This is why the United States should abandon the TPP – and why Australia should support its abandonment. Abandoning the TPP, and requiring our governments to focus their efforts on trade deals that take a prudent approach to market access and a tough line on rent-seeking - would be beneficial for both our countries.</p><img src="https://counter.theconversation.com/content/69045/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Elizabeth Thurbon has previously received funding from the Australia Research Council. </span></em></p><p class="fine-print"><em><span>Linda Weiss is a Fellow of the Academy of Social Sciences in Australia and has previously received funding from the Australia Research Council.</span></em></p>The United States and other countries are right to reject the TPP, but President-elect Donald Trump’s claims about it are misguided.Elizabeth Thurbon, Senior Lecturer in International Relations / International Political Economy, UNSW SydneyLinda Weiss, Professor of Political Science, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/680432016-11-07T11:01:12Z2016-11-07T11:01:12ZLibertarian economics: A philosophical critique<p>The focus of my research as a political philosopher is on matters of economic justice. I ask questions such as: Are markets consistent with justice? Is freedom enhanced through economic exchange? If so, why, and if not, why not? </p>
<p>One position that I have held for most of my career is that free market, or libertarian, thinking suffers from major conceptual and moral failings. While my efforts have centered on the work of various 19th- and 20th-century proponents of free markets, in the interest of getting a contemporary look at this thinking, I recently sat down with <a href="https://www.lp.org/platform/">the platform</a> of the American Libertarian Party. </p>
<p>What I found did not surprise me. The platform suffers from the very same factual and conceptual difficulties that we find in the writings of the political philosophers that inspired it. </p>
<p>That’s a strong claim, so let me defend it by examining a few points from the platform. </p>
<h2>Looking at the platform</h2>
<p>Let’s start with this one: </p>
<blockquote>
<p>“A free and competitive market allocates resources in the most efficient manner.” </p>
</blockquote>
<p>This is wishful thinking. </p>
<p>Markets can be inefficient for many reasons. Sometimes the costs or benefits of market transactions fall on people who are not in the market. For example, your purchase of a vaccine keeps me healthier, while your dumping waste in the river that runs past my house has the opposite effect. Such occurrences, known as externalities, are considered market failures in that resources have not been allocated efficiently. </p>
<p>To correct such failures and make markets efficient, governments intervene by providing things like courts, roads, police and fire departments, as well as regulations requiring polluters to pay for their environmental damages. </p>
<p>Other types of market failures are caused when one or a few firms control the price and output of a good or service, or when consumers are not given adequate information to make their purchases, as, for instance, when investors are not sufficiently informed of the risks of their investments. Here again, the solution in most cases is some form of government intervention. Monopolies are broken up. Firms are forced to disclose relevant consumer information.</p>
<p>The problem for libertarians, and the reason they need to believe that markets are always efficient, is that - according to their platform - they also believe:</p>
<blockquote>
<p>“The only proper role of government in the economic realm is to protect property rights, adjudicate disputes, and provide a legal framework in which voluntary trade is protected.”</p>
</blockquote>
<p>The difficulty with this statement is not just that it denies the reality of market inefficiencies. Of greater concern is how drastically it underestimates what is required to protect property rights. </p>
<h2>How charitable can we be?</h2>
<p>Consider, for example, the cost of maintaining a stable, peaceful society - a society in which those who fall on hard times do not threaten the system as a whole. And also consider this statement from the libertarian platform: </p>
<blockquote>
<p>“The proper and most effective source of help for the poor is the voluntary efforts of private groups and individuals. We believe members of society will become even more charitable and civil society will be strengthened as government reduces its activity in this realm.”</p>
</blockquote>
<p>The problem here is that there is simply no evidence that private charity has anywhere near the capacity to alleviate the sort of poverty that confronts many parts of this country. The more than <a href="http://www.census.gov/library/publications/2016/demo/p60-256.html">40 million people</a> below the poverty line would simply overwhelm organizations like the Red Cross, <a href="http://www.redcross.org/news/press-release/How-the-American-Red-Cross-Spends-Your-Donations">whose budget</a> is about <a href="https://www.gpo.gov/fdsys/pkg/BUDGET-2016-BUD/pdf/BUDGET-2016-BUD.pdf">one 200th</a> of what the federal government provides for <a href="https://www.washingtonpost.com/news/wonk/wp/2014/01/12/no-we-dont-spend-1-trillion-on-welfare-each-year/">welfare</a> and Medicaid. </p>
<p>Natural disasters alone far outstrip the capacity of churches and secular charities. FEMA, with its <a href="https://www.dhs.gov/sites/default/files/publications/FY15-BIB.pdf">US$14 billion</a> budget, would be a libertarian casualty.</p>
<p>If it isn’t the proper role of government to aid the poor, and private charities can’t handle it, then what? The short answer is that the people who do have property might not have it for long. Look to history. We see <a href="http://www.unodc.org/unodc/en/frontpage/2012/February/economic-crises-can-trigger-rise-in-crime.html">property crimes rise</a> predictably with every downturn in the economy. If you take away public assistance, it stands to reason that whatever money you may save you’ll likely lose many times over in increased spending for policing, courts, prisons and other institutions that protect property owners. </p>
<p>Indeed, I would argue that welfare is a bargain. It may be, to quote again from the platform, that “All efforts by government to redistribute wealth … are improper in a free society,” but they are certainly not improper to one in which people are secure in their belongings.</p>
<p>There are a number of other basic fallacies in the platform. I’ll close with two. </p>
<p>First: “Libertarians would free property owners from government restrictions … as long as their choices do not harm or infringe on the rights of others.” </p>
<p>The difficulty here is that it is precisely to protect the rights of others (and the environment) that we have the regulations we do.</p>
<p>Second: “Governments are unaccountable for damage done to our environment and have a terrible track record when it comes to environmental protection.” </p>
<p>To be sure, governments around the world have been far less than perfect when it comes to protecting the environment. Yet even a modest comparison to private efforts – where, absent regulations, there are few if any incentives to act responsibly – demonstrates that public oversight is the only reasonable option. Leaving environmental decisions to the <a href="http://www.ibtimes.com/exxon-valdez-oil-spill-anniversary-effects-facts-pictures-captains-drinking-rumors-1856434">Exxon</a>s, <a href="http://www.vanityfair.com/news/2006/07/generalelectric200607">GE</a>s and <a href="http://www.nytimes.com/2010/05/09/business/09bp.html">BP</a>s of the world would, as history has shown, have catastrophic consequences.</p>
<p>These Libertarian economic positions are a long way from those espoused by the Democratic Party. While there may be some overlap with the Tea Party cohort, most mainstream Republicans would also reject these extreme views. The bottom line is that until Libertarians give more thought to economic reality, they will simply not be a reasonable electoral choice.</p><img src="https://counter.theconversation.com/content/68043/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Lindsay does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Are the Libertarians a viable alternative to Hillary Clinton or Donald Trump? A political philosopher who studies economic justice looks at the platform.Peter Lindsay, Associate Professor of Philosophy, Georgia State UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/625662016-07-19T09:02:03Z2016-07-19T09:02:03ZWill Theresa May break from Thatcherism and transform business?<p>It is hardly controversial that when the UK’s new prime minister, Theresa May, stepped into the role, she delivered a <a href="https://www.gov.uk/government/speeches/statement-from-the-new-prime-minister-theresa-may">bold message of “social justice”</a>, promising to work hard “not for the privileged few but everyone”. It followed swiftly on the heels of the vision she delivered <a href="http://www.theresa2016.co.uk/we_can_make_britain_a_country_that_works_for_everyone">to reform business</a>, in particular by getting “tough on irresponsible behaviour”.</p>
<p>Talking tough might sound good to an electorate that has lost trust in the business world, but putting this rhetoric into practice is not so simple. Particularly when we all rely on these businesses for research and development, the manufacture of products, the sale of goods and services, jobs, and, in many cases, pensions. Indeed, many with pensions have no knowledge of the companies in which their funds are invested, let alone how they treat their employees, suppliers and customers. </p>
<p>So will May’s premiership offer any major shift to resolve this tension? </p>
<p>Well, the new prime minister has promised to crack down on fat cat pay, a topic that <a href="https://www.theguardian.com/business/2016/apr/29/sir-martin-sorrell-70m-in-2015-pay-deal-wpp">continues to capture the headlines</a>. It will particularly resonate at a time when the majority of people have not had a decent pay rise <a href="https://next.ft.com/content/77bdc652-2289-11e6-aa98-db1e01fabc0c">since the onset of the 2008-09 financial crisis</a>. The move would also show some respect to employees and their contribution to businesses’ profits.</p>
<p>But May’s suggestion that shareholder votes on corporate pay should be binding – not just advisory – is nonetheless startling. Companies already hold legally binding votes on future pay policies every three years, a move introduced by the previous coalition government championed by then business secretary Vince Cable. </p>
<p>Annual voting by shareholders may add more red tape, adding to costs and procedures. And, paradoxically, this added complication may not support May’s aim of helping <a href="http://www.conservativehome.com/parliament/2016/06/theresa-mays-launch-statement-full-text.html">“British firms to do business all around the globe”</a>, particularly at a time of unprecedented challenges for business, with Brexit terms not yet agreed on. </p>
<h2>Transforming capitalism</h2>
<p>Far more sweeping is May’s plan to tackle “vested interests” by giving worker representatives and consumers a say on the boards of big British companies. If implemented, it will signal a <a href="https://theconversation.com/theresa-may-prime-minister-the-ball-is-in-her-court-on-workplace-democracy-62388">major shift</a> in their power balance. Up until now, shareholders’ dominance has been the prevailing measure by which all corporate decisions would stand or fall. </p>
<p>Many shareholders view their investment as constituting a purely financial asset. Their demands are generally more short-term, driven by a hunger for ever-increasing dividend payments and capital growth. This can stifle long-term planning and funding of research and development and, ultimately, hinder stable growth. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/130896/original/image-20160718-2120-1dvwykx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/130896/original/image-20160718-2120-1dvwykx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=369&fit=crop&dpr=1 600w, https://images.theconversation.com/files/130896/original/image-20160718-2120-1dvwykx.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=369&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/130896/original/image-20160718-2120-1dvwykx.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=369&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/130896/original/image-20160718-2120-1dvwykx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=464&fit=crop&dpr=1 754w, https://images.theconversation.com/files/130896/original/image-20160718-2120-1dvwykx.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=464&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/130896/original/image-20160718-2120-1dvwykx.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=464&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Shaking up the boardroom.</span>
<span class="attribution"><span class="source">shutterstock.com</span></span>
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</figure>
<p>The restructure could follow the example of some prominent EU members, such as France and Germany, where worker representation has been the norm for many years. It would constitute a complete change in culture from a more profit-driven focus that benefits a few (namely shareholders) to one that benefits all who have a stake in companies.</p>
<p>Greater involvement of all parties with an interest in the company can lead to a sense of community and generate more of a partnership approach to business. Difficult decisions will have to be approached in a way which looks at the consequences for all stakeholders, not purely the financials. But this can be ultimately beneficial for companies. </p>
<p>This is something that research into a <a href="http://relationalthinking.net/product/transforming-capitalism-from-within-a-relational-approach-to-the-purpose-performance-and-assessment-of-companies-rushworth-and-schluter/">“Relational Company” model</a> has found – by putting the interests of all stakeholders at the heart of their decision making, companies can become more competitive, stable and successful. Ultimately, this will generate greater returns for shareholders. </p>
<p>The current, corporate model has been tested and vigorously challenged by the recent financial crisis. And if the new PM puts her words into action, it looks like it faces even greater challenges ahead. Time will tell whether she will distance herself from the Thatcher years – not only by insisting that her party believes in society and communities as opposed to just markets and individualism, but actually delivering on that promise.</p>
<p>Abandoning the Thatcherite faith in the free market is not going to be an easy task and May is likely to face an uphill struggle against those representing the interests of shareholders and directors. The detail will be key to how exactly the model and balance would work. If successful, it could help transform the way capitalism operates in the corporate sector, for the benefit of all those who rely on companies for their livelihood and well-being, and for society more generally. It may also transform society’s view of the behaviour and standing of big business.</p><img src="https://counter.theconversation.com/content/62566/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Prof Reisberg is a member of the Britain in Europe think tank, based at Brunel University London, which brings together academics, legal practitioners and human rights NGO members from across the UK and Europe. He is grateful to Prof Peter Jaffey and Jonathan Rushworth, a retired partner in a major City of London law practice, for contributing views to this comment. Prof Reisberg has acted as an external academic advisor to the Relational Company think tank.</span></em></p>May’s plans to transform business are more radical than they first appear.Arad Reisberg, Head of Brunel Law School; Professor of Corporate Law and Finance, Brunel University LondonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/591342016-05-23T12:53:39Z2016-05-23T12:53:39ZA post-work economy of robots and machines is a bad Utopia for the left<p>Picture a world where robots do all the work while humans enjoy life unburdened by labour. This is an old dream of radicals and Marxists. But the post-work imaginary has taken hold in the unlikeliest of quarters, from <a href="http://www.independent.co.uk/news/business/news/universal-basic-income-policy-under-consideration-by-uk-labour-party-shadow-chancellor-john-a6878856.html">Labour Party</a> <a href="http://www.labour.org.uk/blog/entry/the-new-economics">policy seminars</a> to the <a href="https://www.weforum.org/events/world-economic-forum-annual-meeting-2016/sessions/a-world-without-work/">World Economic Forum</a> in Davos. </p>
<p>Recent books such as <a href="https://www.google.co.uk/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=0ahUKEwiI2fG29cfMAhVKCsAKHbuWBhoQFggdMAA&url=http%3A%2F%2Fwww.versobooks.com%2Fbooks%2F1989-inventing-the-future&usg=AFQjCNEHNAg8C7f_ruBIa1Om6Am8iGaddw&sig2=-wksPrc6XwUOd6f9E6oexw">Inventing the Future</a> by Nick Srnicek and Alex Williams and <a href="http://marxandphilosophy.org.uk/reviewofbooks/reviews/2015/2008">Postcapitalism</a> by Paul Mason have brought these debates to prominence. They have successfully translated the outer fringes of radical thinking into an agenda for policymakers and the media.</p>
<p>The post-capitalism future they promise is driven by automation and a <a href="http://www.basicincome.org/bien/pdf/2000MathersTaylor.pdf">universal basic income</a> (UBI). UBI has advocates on both right and left. Free-market advocates like <a href="http://on.ft.com/1iM0pyN">Martin Wolf of the Financial Times</a> back UBI because capitalism can no longer provide jobs for all and it becomes the saviour of the capitalist system. Left-wing advocates of UBI, like Mason, see it as a route to a future Utopia: in the short-term guaranteeing the survival of capitalism by dealing with technological unemployment, while in the long-term paving the way towards a post-capitalist world.</p>
<p>How can an idea favoured by the free-market right form the basis for a “good” Utopia of the left? To confront this paradox we need to look into how capitalism works in the present. While robots, automation and the universal basic income may take us beyond work they cannot take us beyond capitalism.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/123353/original/image-20160520-4466-1bc8saj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/123353/original/image-20160520-4466-1bc8saj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/123353/original/image-20160520-4466-1bc8saj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/123353/original/image-20160520-4466-1bc8saj.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/123353/original/image-20160520-4466-1bc8saj.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/123353/original/image-20160520-4466-1bc8saj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/123353/original/image-20160520-4466-1bc8saj.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/123353/original/image-20160520-4466-1bc8saj.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Step right up …</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/marcomonetti/12720453974/in/photolist-ko4DMY-7TbkCW-6he3Us-oc4eoT-a7dybG-4899i7-aSJQrc-986W2T-pfM3vV-bHYwCe-pf9ri6-2TLwh4-aQUiCi-7TBbMe-5w8Wk7-pNDqfD-fKkAfy-8WkbK4-2nAZLL-bpf22e-81mL3o-6rAbVD-rn2wih-i5QMV6-ppTGGX-dbWQgZ-GbvY1-9nHxRC-f3Ttw1-fJEQQG-bw6wdG-naaWT9-3Lw4c-eysYau-oXtkHp-fiz9fG-7TpcyT-2nAayU-7zxAZ7-fY1PtH-2nAZNd-dE7YZr-qeqh68-nSE9tm-rj7kki-hhrdEa-pqNXsg-bGTDvx-9zfHV3-aaBbBG">marco monetti/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a></span>
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</figure>
<h2>Post-work is not post-capitalism</h2>
<p>The UBI is an unconditional sum of money provided by the government regardless of whether you are getting a salary. It gives everyone a base wage and replaces the social security system if you are unemployed or unable to work. So far so progressive – at first glance. But we think the post-work thesis rests on flawed foundations. These relate to the way it understands work, the wage, technology, the state and money. And this has serious political implications. </p>
<p><strong>Work and the wage</strong></p>
<p>According to advocates of the post-work thesis, the problem with capitalism is that it makes us dependent upon work and is the basis for an exploitative system. The UBI appears to be progressive for it frees us from exploitation as well as makes everyone semi-autonomous from work.</p>
<p>However, the negative effects of capitalism go beyond work. Via the wage, capitalism involves the subordination of our lives to the command of money. Money is not a thing, or a neutral mechanism to allow buying and selling, but a form of social domination which is impossible to escape. In the global economy, we cannot live without money. So while UBI may make us free from (un)employment, it makes us more dependent on money and the state. Ultimately, it provides a state-sponsored foundation for unsustainable hyper-consumption. </p>
<p><strong>Technology is not neutral</strong></p>
<p>Automation is one of the pillars of the “virtuous” circuit of the post-work Utopia in which new technology, encouraged by the state, can increase productivity and free labour from production. Non-workers can then be supported by the resources created by automation, which creates a fiscal room for the UBI. But we see automation as the problem more than the solution. The design and development of technology will still occur under capitalist imperatives. In the Brave New World envisaged in the post-work dystopia, robots are celebrated while humans are denigrated and consigned like zombies to the total domination of money and the state.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/123358/original/image-20160520-10353-1mgzb0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/123358/original/image-20160520-10353-1mgzb0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/123358/original/image-20160520-10353-1mgzb0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=482&fit=crop&dpr=1 600w, https://images.theconversation.com/files/123358/original/image-20160520-10353-1mgzb0.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=482&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/123358/original/image-20160520-10353-1mgzb0.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=482&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/123358/original/image-20160520-10353-1mgzb0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=605&fit=crop&dpr=1 754w, https://images.theconversation.com/files/123358/original/image-20160520-10353-1mgzb0.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=605&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/123358/original/image-20160520-10353-1mgzb0.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=605&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">The state as automation in Fritz Lang’s Metropolis.</span>
<span class="attribution"><a class="source" href="http://metropolis1927.com/#press">http://metropolis1927.com/#press</a></span>
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<p><strong>What about the state?</strong> </p>
<p>The state imagined here is not the one we find in reality. Increased automation, and therefore worklessness, requires a capitalist state that supports and maintains our capacity to consume, while UBI increases the dependence of people on the state for their subsistence. UBI, and the post-work Utopia it supports, require a state that exists in order to guarantee capitalism’s survival. It is not the left’s dream of a state to usher in a new post-capitalist age. </p>
<p><strong>Money, money, money</strong></p>
<p>Money governs the planet. We cannot live except through money, received in the form of a wage pitched at the level we need to survive as productive labour. But the roots of a wage crisis lie not in the amount of the money we have in our pockets, but because our access to the things we need to live is mediated by money in the first place. How, then, is a crisis of the wage solved by distributing more money? Printing money is easy. Living under the abstract form of domination it implies is not. The distribution of money by the state will only mean a different form of distribution of wealth for social reproduction but in no way can move us to a post-capitalist era. </p>
<h2>Concrete Utopias are good Utopias</h2>
<p>The post-work Utopia is <a href="http://onlinelibrary.wiley.com/doi/10.1111/dech.12118/abstract?userIsAuthenticated=false&deniedAccessCustomisedMessage=">a bad Utopia</a> for the left. It is a dangerous proposal that leaves us beholden to capital, the state, and money. In short, it consolidates capitalism. </p>
<p>Contemporary struggles around <a href="https://roarmag.org/magazine/building-power-crisis-social-reproduction/">social reproduction</a> show a different path. Experiments in food, care, land, work and housing led by social movements and organisations worldwide – such as the <a href="http://monthlyreview.org/2002/01/01/the-unemployed-workers-movement-in-argentina/">Movement of Unemployed Workers in Argentina</a> – highlight how it is possible to challenge capitalism in a broader, more creative way. </p>
<p>By intervening in and “commoning” our access to the things we need, cooperative projects seemingly unrelated to the world of work may pose the most radical challenge to it. These projects develop not outside or post-capitalism but within it. Concrete Utopias create alternative practices, ideas and horizons that exist in the here and now. They are crisscrossed by tensions and contradictions, disappointments and setbacks. But it is here where we can find the promise of a properly post-capitalist future.</p><img src="https://counter.theconversation.com/content/59134/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Frederick H. Pitts receives funding from the Economic and Social Research Council.</span></em></p><p class="fine-print"><em><span>Ana Cecilia Dinerstein and Graham Taylor do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>A Brave New World of worklessness and a universal wage is attracting advocates across the political spectrum.Ana Cecilia Dinerstein, Associate Professor in Political Sociology, University of BathFrederick Harry Pitts, PhD Researcher, University of BathGraham Taylor, Associate professor in Sociology, University of the West of EnglandLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/502922015-11-13T10:52:36Z2015-11-13T10:52:36ZHow existentialism can shield us from the free market’s dark side<figure><img src="https://images.theconversation.com/files/101759/original/image-20151112-9400-1gh4kp6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Sartre could probably resist, unless he was hungry.</span> <span class="attribution"><span class="source">Cinnabons via www.shutterstock.com</span></span></figcaption></figure><p>The smell of cinnamon wafts through the air. My guard is down; resistance is futile. Like a zombie, I roll my luggage across the airport food court and stand in line to pay too much for what I don’t even want, a diet-killing Cinnabon.</p>
<p>I have been phished, at least that’s how two Nobel laureates would describe my experience in their new book <a href="http://press.princeton.edu/titles/10534.html">Phishing for Phools</a> and in their article <a href="https://theconversation.com/the-dark-side-of-free-markets-48862">The Dark Side of Free Markets</a>. That is, a company has manipulated my weak will to get me to buy something sweet.</p>
<p>George A Akerlof and Robert J Shiller are concerned about the unrealistic depiction of the rational consumer found in economics textbooks and classrooms. This may indeed be a problem for the study and practice of economics. But it is not a problem for the average person, for whom the discovery that there is manipulation and deception in the marketplace is on par with Captain Renault being “shocked, shocked to find that gambling is going on” in Casablanca. </p>
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<p>What is to be done? Akerlof and Shiller paternalistically <a href="https://theconversation.com/the-dark-side-of-free-markets-48862">praise</a> “a whole raft of individual heroes, social agencies and government regulation [that] puts limits on this downside of markets to phish us for phools.” </p>
<p>In my new book <a href="http://www.wiley.com/WileyCDA/WileyTitle/productCd-1119121280.html">The Free Market Existentialist: Capitalism without Consumerism</a>, I put responsibility back on the individual, who is smarter and more capable than Akerlof and Shiller recognize. As an average individual, I realize that I am not fully rational and that my will is weak. Beyond that, I know that the marketplace is lousy with hucksters and scam artists looking to take advantage of my irrationality and weakness. </p>
<p>But I can’t expect – or rely on – the government to protect me from myself and my nature. It’s up to each of us to recognize the attempted manipulation and make smart choices. </p>
<p>While free markets do have a dark side, it’s more helpful to consider this through the eyes of individual consumers, not the government and its role as regulator. We are better equipped to do something about it, and existentialism can be our guide and shield.</p>
<h2>Sartre, socialism and the Cinnabon</h2>
<p>Manipulation and deception in selling baked goods can’t make me do anything that I don’t want to do. All it can do is create the situation in which I regrettably, but freely, change priorities, ignoring the long-term goal of losing weight in favor of satisfying the short-term goal of experiencing the sugar high of a Cinnabon. </p>
<p>As the existentialist <a href="http://www.iep.utm.edu/sartre-ex/">Jean-Paul Sartre</a> says, “there is freedom only in a situation” and “there is no situation in which [a person] would be more free than in others.” </p>
<p>Existentialism is a philosophy that reacts to an apparently absurd or meaningless world by urging the individual to overcome alienation, oppression and despair through freedom and self-creation in order to become a genuine person. Curiously, Sartre and most of the French existentialists were socialists. </p>
<p>In my book, I argue that there are sociological reasons for this – just as there are sociological reasons why they smoked stinky cigarettes and drank red wine – but there are no logically necessary reasons. (One need not be a socialist to be an existentialist.)</p>
<h2>Freedom and responsibility</h2>
<p>Indeed, to be an existentialist is first and foremost to recognize one’s own freedom and responsibility. </p>
<p>Existentialism calls for us to define ourselves as individuals and to resist being defined by external forces. Thus, the self-defining existentialist may find consumer culture crass without necessarily rejecting the free market that makes it possible.</p>
<p>Fear of free markets is just fear that people can’t be trusted to think and act for themselves. Dealing with consumer culture may be difficult, but it is just the kind of challenge the free market existentialist relishes for the opportunity to exercise responsibility and to grow through challenge. Indeed, capitalism provides a large array of choices and opportunities conducive to self-definition.</p>
<p>Because consumer culture may be in tension with one’s ideals and long-term goals, it is up to the individual to recognize this and take control of her own desires and spending. Don’t buy a Hershey bar as you pass through the candy gauntlet at the supermarket checkout. Tear up that credit card application you received in the mail. If you can’t afford something, don’t buy it. Resist consumerism. </p>
<h2>What drives consumer culture</h2>
<p>Consumerism is ugly. It is the drive and desire for the newest and latest goods and services for the sake of deriving self-worth and signaling one’s worth to others. Shopping and showing off can be intoxicating, but each of us needs to monitor our own consumption and be mindful of whether we are consuming or being consumed. </p>
<p>One way to counteract consumerism is by practicing voluntary simplicity. Rather than indulge in consumption for the sake of keeping up with the Joneses, we can simplify our preferences and possessions. </p>
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<p>I offer myself as a highly imperfect example. I have the cheapest possible cellphone and I keep it in the glove compartment of my car for use only in case of emergency. And I drive a simple, plain car, nothing fancy. My clothes are basic, not chosen to impress. </p>
<p>These are my authentic choices. It’s hard for me to imagine, but someone else might authentically choose to wear a Brooks Brothers suit while talking on an iPhone and driving a BMW. In any event, voluntary simplicity is not mandatory. </p>
<h2>Free market mantra: buyer beware</h2>
<p>The fact that ordinary deception occurs in the marketplace is unfortunate, but in a free society there is nothing to be done except to become aware of it as a general occurrence and to be on the look out for it in specific cases. Caveat emptor, let the buyer beware. </p>
<p>Because of the dissemination of personal information, big companies know more about me than I know about them. Retail stores precision target me with individualized ads, and Facebook eerily entices me to buy the book I was just looking at on Amazon. </p>
<p>For the moment this is unnerving, but with the passage of time, in my view, it will seem as routine as the salesman’s pitch to get the rust-proofing on the new car. Government intervention would be unnecessary and intrusive. Ordinary deception seems to be becoming more difficult to pull off thanks to the proliferation of information available for free on the internet. Scams and manipulation are <a href="http://www.ripoffreport.com/">regularly reported and categorized</a>. </p>
<p>We need the government to protect us from fraud, because fraud is tantamount to theft, but we do not need the government to regulate the free market. Of course there is a fine line between deception and fraud, but we should have good reason for classifying an act as fraud before allowing government involvement. </p>
<p>In a free society, regulation can come without force in the form of private citizens like Akerlof and Shiller anticipating and documenting the phishing that occurs in the marketplace. </p>
<p>Information, self-knowledge and self-definition will not always save us from being phooled, but they will preserve dignity, freedom and choice.</p><img src="https://counter.theconversation.com/content/50292/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>William Irwin does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The best guard against a free market’s downsides and consumer culture is for individual consumers to take responsibility for their choices.William Irwin, Professor of Philosophy, King's CollegeLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/488622015-10-21T10:32:44Z2015-10-21T10:32:44ZThe dark side of free markets<figure><img src="https://images.theconversation.com/files/99103/original/image-20151020-32252-6q4te5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">There's a reason they call them 'impulse purchases.'</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/armydre2008/4317078190/">frankieleon/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span></figcaption></figure><p>It is now <a href="http://www.diabetes.org/diabetes-basics/statistics/">not uncommon</a> for 11-year-olds to be diabetic. I see one reason for it every time I check out at my local Safeway in Washington. The candy is right there at the cash register, waiting to be eaten. </p>
<p>But this does not mean that the manager of the store is mean or even irresponsible. If she has qualms about this practice, she would face a real dilemma: she needs to show a profit. The margins at supermarkets are tiny. No matter what her morals, she has almost no choice but to place those sweet impulse buys where customers can see them. In other words, there is an economic equilibrium in which businesses take advantage of every opportunity to increase profits. In such an equilibrium, the candy will be at the checkout counter. </p>
<p>Curiously, while economists understand each and every such instance where people are tempted to buy things that are not good for them, they fail to appreciate that this occurs because of a general principle of economics. They fail to understand that free markets, as bountiful as they may be, will not only provide us with what we want, as long as we can pay for it; they will also tempt us into buying things that are bad for us, whatever the costs. </p>
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<h2>Markets will deceive</h2>
<p>Just as free markets can serve the public good “by an invisible hand” (as <a href="http://www.econlib.org/library/Enc/bios/Smith.html">Adam Smith saw</a> more than two centuries ago, and is the foundation of the field of economics), free markets will do something else. As long as there is a profit to be made, they will also deceive us, manipulate us and prey on our weaknesses, tempting us into purchases that are bad for us. That is also a fundamental feature of market equilibrium, in which supply and demand balance each other out. </p>
<p>My fellow economists, while they recognize such behavior in individual instances, fail to see this as a general principle. And thus a lot of bad things happen, such as the candy at the checkout counter. Most notably, we economists <a href="http://www.economicpredictions.org/why-economists-failed-to-predict-the-financial-crisis.htm">should have been a chorus</a> warning of the financial crash of 2008. We should have recognized that people should not be buying overrated mortgage-based securities, nor should banks have been creating the insecure loans that backed them. Instead there were at most a few lone voices of protest. We should have been more skeptical.</p>
<p>But this is not just about economists and what we think, because through long chains of reportage and other channels (such as this one), what we say in our faculty lounges affects politicians and the public opinion more generally. </p>
<p>This failure to understand that markets have this downside is then passed on into policy more narrowly defined. The public fails to understand that in the economic equilibrium, if there is a profit to be made, someone will take it up, as long as it is legal and as long as there is no public protest against it. </p>
<h2>The consequences of being a ‘phool’</h2>
<p>A recent book we wrote called <a href="http://press.princeton.edu/titles/10534.html">Phishing for Phools</a> describes how the fundamental logic of economics, going back to Adam Smith, delivers this conclusion. That is, markets are not benign forces working for the greater good but instead are filled with businesses that “phish” by exploiting our weaknesses to get us to buy their products. We are the subjects of those phishes – the “phools” – when we fall for it. </p>
<p>The onus in the book was on us to show that temptations to make bad decisions really do significantly affect our well-being. Such a demonstration was surprisingly easy. </p>
<p>There are four huge areas of our lives – consumer spending, investment, health and politics – in which we are making decisions that no one (on reflection) could possibly want. Yet we make those decisions, and the free market provides them, just as bountifully as it satisfies our more benign impulses.</p>
<p>First, even in the US, as rich as we are by all historical standards, most of us go to bed at night <a href="http://time.com/money/3934909/money-worries-retirement">worried</a> about how to pay our bills. We are continually tempted, and have a very hard time <a href="http://national.deseretnews.com/article/2974/5-reasons-we-dont-budget.html">sticking to a budget</a>. Thus, the <a href="http://money.cnn.com/2013/06/24/pf/emergency-savings">median American family</a> has on average less than one month’s expenditure in its bank account; half of all US respondents in a 2011 survey said they would have a very hard time <a href="http://business.time.com/2011/06/01/nearly-half-of-americans-would-struggle-to-come-up-with-2k-in-30-days/">raising US$2,000 in a month’s time</a> if an emergency occurred; and my rough estimate suggests that 20% of us will go bankrupt at some point over our lifetimes.</p>
<p>Second, there are financial booms and busts because stories – what we are saying to ourselves and what we say to each other when we make our decisions – spread like epidemics. Those stories lead people into bad investments, and then, when those investments go sour, there are declines in confidence that threaten the whole financial system. Humpty Dumpty has a great fall and only slowly is pieced back together again. </p>
<p>Third, regarding health, the market gives us tobacco, which, according to Centers for Disease Control <a href="http://www.cdc.gov/tobacco/data_statistics/fact_sheets/fast_facts/">estimates</a>, is responsible for almost 20% of deaths in the United States. The pharmaceuticals industry sells us drugs with unknown long-term effects, which are sometimes severe. And Big Food serves us sugar and fat, so that <a href="http://www.niddk.nih.gov/health-information/health-statistics/Pages/overweight-obesity-statistics.aspx">two-thirds of Americans are overweight</a>, with more than half of them also obese. The list goes on. </p>
<p>Finally, the political system in a democracy is like a market system: there is a competition for votes. But that too has a “phishing equilibrium.” To keep their jobs, politicians have to raise money from “the interests” and use it for TV ads that show what nice folks they really are.</p>
<h2>Prosperity at a steep premium</h2>
<p>Free markets may lead to prosperity, but they also deliver more than the unalloyed benefits ascribed to them. This unwillingness to acknowledge their dark side undergirds the basic fundamental thinking of economists and leads to bad government policies. A grownup’s view of the economy that incorporates the downsides of capitalism is a prerequisite for sane policy. </p>
<p>The economic system works as well as it does not just because of individual incentives, but also because a whole raft of individual heroes, social agencies and government regulation puts limits on this downside of markets to phish us for phools. Such policy is a balancing act, to filter out the bad sediment while allowing through the true benefits of free markets.</p>
<p>This view of a phishing equilibrium thus challenges current economic thinking in a new way. There is a huge payoff to incorporating it into our view of the economy. Just as we love our children, we should love free markets; but as with our children, it would be a mistake to think that they can do no wrong.</p><img src="https://counter.theconversation.com/content/48862/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>George A Akerlof received funding as Guest Scholar at the International Monetary Fund and as Co-Director of the Social Interactions, Identity and Well-being Program of the Canadian Institute for Advanced Research.</span></em></p><p class="fine-print"><em><span>Robert J Shiller is affiliated with the Competitive Markets Advisory Council for the Chicago Mercantile Exchange and was elected president of the American Economic Association for 2016. </span></em></p>While free markets have delivered benefits, they also prey on our weaknesses, tempting us to buy things that are bad for us, be it sweet candy or sour investments.George A. Akerlof, University Professor, Georgetown UniversityRobert J Shiller, Professor of Economics, Yale UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/453362015-09-18T05:39:50Z2015-09-18T05:39:50ZNature can’t pay its own way – so let’s take the market out of conservation<figure><img src="https://images.theconversation.com/files/92072/original/image-20150817-5121-1lo21s.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Lower Falls of the Yellowstone River, protected as the world's first national park in 1872. But how do we best protect nature in the future?</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/yellowstonenps/14995661458">YellowstoneNationalPark/flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span></figcaption></figure><p>For years, scientists and environmentalists have debated the best ways to conserve and protect natural resources from pollution and over-exploitation. </p>
<p>In the late 19th century, conservation advocates with the help of President Roosevelt succeeded in making Yellowstone the first US national park. Yellowstone’s status sent a strong message against unregulated commercial extraction and the model has since been replicated worldwide. However, the strict exclusionary nature of national parks was extremely burdensome for local and indigenous peoples who remained reliant on natural resources within protected areas. </p>
<p>The policy of “fortress conservation” was intended to give way in the late 20th century to a host of more sustainable alternatives, announced at the first <a href="http://www.un.org/geninfo/bp/enviro.html">Earth Summit in Rio</a> in 1992. Conservation and development would be better integrated, and rural poverty addressed by bringing the poor into a global marketplace, while simultaneously delivering the market deep into the rainforests.</p>
<p>Since Rio, <a href="http://www.teebweb.org/">market-based conservation</a> has gained a lot of traction, and almost all forms of nature have been commodified. Packaged into sleek financialised terminology such as <a href="http://www.carbonplanet.com/introduction_to_carbon_credits">carbon credits</a>, ecosystem services or <a href="http://www.speciesbanking.com">species banking</a>, the market has become such a supposed panacea for conservation that <a href="http://www.envplan.com/abstract.cgi?id=d170133">selling nature</a> has become, for many, the only method of conserving it.</p>
<h2>Bioprospecting</h2>
<p>Yet a cautionary tale of <a href="http://apps.who.int/medicinedocs/en/d/Jh2996e/6.3.html">bioprospecting</a> challenges the dominant and countervailing logic that if conservation were somehow made profitable, nature could begin to pay for its own survival. </p>
<p>Bioprospecting is the process of turning indigenous medicinal knowledge and nature into commercial drugs. Its advocates say it would provide the motivation and more importantly financing for conservation in the world’s biodiversity hotspots. Why chop down the Amazon if the forest might contain all kinds of useful and valuable drugs?</p>
<p>The drug discovery example planted in the public’s imagination the iconic image of the “‘<a href="http://www.sciencedirect.com/science/article/pii/S0016718515002298">barefoot doctor</a>’ seeking to find the medicinal cure to humanity’s ills under the canopy of the rainforests”. But with little to show in terms of any new blockbuster drugs or significant biodiversity saved, we are left to ask why the market has thus far been <a href="http://conservationmagazine.org/2012/03/a-bitter-pill/">so underwhelming</a> at achieving its conservation goals?</p>
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<img alt="" src="https://images.theconversation.com/files/91804/original/image-20150813-21393-blvhh6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/91804/original/image-20150813-21393-blvhh6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/91804/original/image-20150813-21393-blvhh6.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/91804/original/image-20150813-21393-blvhh6.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/91804/original/image-20150813-21393-blvhh6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=501&fit=crop&dpr=1 754w, https://images.theconversation.com/files/91804/original/image-20150813-21393-blvhh6.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=501&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/91804/original/image-20150813-21393-blvhh6.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=501&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Many set out to discover new drugs and species in rainforests, but bioprospecting hasn’t done much for humanity of late.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/cifor/5660821816">CIFOR/flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-nd/4.0/">CC BY-NC-ND</a></span>
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<h2>Capitalism is not the answer</h2>
<p>Capitalism has never really been compatible with conservation. It encourages concentration of resources in already wealthier areas, while the urgent need to protect certain species or habitats is rarely reflected in market prices which are driven by desires to turn a quick buck. For example, drug discovery takes place in large high-tech research laboratories far removed from biodiversity-rich source countries targeted for conservation. </p>
<p>It takes more than 15 years and hundreds of millions in research and development costs to <a href="http://www.ncbi.nlm.nih.gov/books/NBK22930/">bring drugs to market</a> – investment costs too big for low-income counties and local communities to even conceive of, never mind getting involved in, in any meaningful way. </p>
<p>For conservation to be effective, there needs to be an understanding of the benefits and the burdens of bioprospecting participation for all parties involved. </p>
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<img alt="" src="https://images.theconversation.com/files/95245/original/image-20150917-7525-x04aw2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/95245/original/image-20150917-7525-x04aw2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=955&fit=crop&dpr=1 600w, https://images.theconversation.com/files/95245/original/image-20150917-7525-x04aw2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=955&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/95245/original/image-20150917-7525-x04aw2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=955&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/95245/original/image-20150917-7525-x04aw2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1201&fit=crop&dpr=1 754w, https://images.theconversation.com/files/95245/original/image-20150917-7525-x04aw2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1201&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/95245/original/image-20150917-7525-x04aw2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1201&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">National parks aren’t immune from human problems.</span>
<span class="attribution"><span class="source">Connor Joseph Cavanagh</span>, <span class="license">Author provided</span></span>
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<p>Burdens include the displacement and loss of access for locals due to new conservation enclosures – <a href="http://motherboard.vice.com/read/carbon-colonialism-the-new-scramble-for-africa">sometimes involving violence</a> – and the potential misappropriation of nature and knowledge, what critics refer to as “<a href="http://www.theguardian.com/global-development/2013/may/01/eu-biopiracy-protect-indigenous-people">biopiracy</a>”. Many of these issues have a serious effect on any local “buy-in” to conservation programmes, and indigenous people rarely see the value of nature in terms of individual market exchange.</p>
<p>Bioprospecting has come a long way in addressing some of these issues. The 2010 <a href="https://www.cbd.int/abs/about/">Nagoya Protocol</a>, signed by 63 countries and the EU, set up access and benefit sharing mechanisms for the world’s genetic resources. </p>
<p>But right as bioprospecting seemed to be working out many of its problems, large pharmaceutical companies started closing their natural products divisions and moved on to the next big thing: chemically-derived computer generated molecules, known as <a href="http://www.nature.com/nchem/journal/v6/n10/full/nchem.2074.html">combichem</a> – a portmanteau of combinatorial chemistry. As with many market conservation initiatives, this was a fix; the fluidity of the market left the rural poor with little hope of a potential windfall of conservation benefits in their hands.</p>
<h2>'Dark shadow’ of overpopulation</h2>
<p>For conservation thinking to move forward it needs to take into account some very important and complex issues concerning markets. </p>
<p>As much as we would like to believe that we have moved beyond the Malthusian belief that overpopulation and local level mismanagement leads to environmental degradation and scarcity, the spectre of <a href="https://theconversation.com/could-the-pill-save-the-polar-bear-44401">too many people in the world</a> continues to cast a “dark shadow” across our current conservation policy.</p>
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<img alt="" src="https://images.theconversation.com/files/91795/original/image-20150813-21435-1ytrktr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/91795/original/image-20150813-21435-1ytrktr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=733&fit=crop&dpr=1 600w, https://images.theconversation.com/files/91795/original/image-20150813-21435-1ytrktr.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=733&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/91795/original/image-20150813-21435-1ytrktr.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=733&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/91795/original/image-20150813-21435-1ytrktr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=922&fit=crop&dpr=1 754w, https://images.theconversation.com/files/91795/original/image-20150813-21435-1ytrktr.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=922&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/91795/original/image-20150813-21435-1ytrktr.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=922&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Thomas Malthus, best known for his belief that overpopulation would lead to catastrophe.</span>
<span class="attribution"><a class="source" href="http://wellcomeimages.org/indexplus/obf_images/fa/25/d2c7707f809bd259eb86d61d1cc5.jpg">Wellcome Library, London</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
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<p>This naturalisation of environmental problems fails to take into account many of the real drivers of global environmental change, such as the marginalisation of rural resource users due to <a href="https://theconversation.com/tigers-elephants-ask-what-have-royals-ever-done-for-us-18725">poorly planned conservation policies</a>, <a href="http://www.startribune.com/how-outsiders-are-complicit-in-african-issues/320211841/">complicit elites</a>, consumption by the global north and large scale extraction by multinationals. Paradoxically, many of these same industries have now become the saviours for today’s market conservation.</p>
<p>No one has all the answers to conservation’s complex challenges, and rarely if ever are we going to find a perfect solution. But we can find the optimal solution. It is astonishing that so many critical social and natural scientists, many of whom have devoted their lives to challenging the dominant narratives of conventional thinking, have become champions for market conservation. We can do better.</p><img src="https://counter.theconversation.com/content/45336/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Benjamin Neimark does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>You can’t simply ‘value’ nature as though it were a commodity able to be bought and sold.Benjamin Neimark, Lecturer, Lancaster Environment Centre, Lancaster UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/466202015-08-25T20:06:37Z2015-08-25T20:06:37ZIt’s the end of the world as we know it…again<p>On “Black Monday” October 19, 1987, the US stock market crashed, losing over 500 points and 22% of its value in a single day. At around the same time, R.E.M. had just broken through as a major act, and their song “It’s the End of the World as We Know It (And I Feel Fine)” was playing everywhere, getting an extra boost from the events of the day. </p>
<p>In the US, it seemed the ostensible “Reagan era” was coming to an end. The still-evolving neoliberal economic order – based on valuing financial returns over wage increases as a source of demand – had been shown up. Asset bubbles were not to be trusted as a stable basis for an economic policy order.</p>
<p>However, a short-run solution would soon be found. Almost immediately, an untested, newly installed Federal Reserve chairman, Alan Greenspan, would flood the streets with money. The stock market would recover its lost ground over the next year and resume its ascent – standing today at 15,871.</p>
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<p>Since then, over the past 28 years, the global economy has run on bubbles. Since 1987, these have spanned the Mexican peso crisis, the Asian financial crisis, the “tech wreck” or “dot-com” bust, and the global financial crisis itself.</p>
<p>Most recently, just this past Monday, August 24, we have seen history repeat. On “Black Monday 2015”, China’s stock market lost 8.5% of its value. In turn, the People’s Bank of China has taken a page from the Greenspan playbook and flooded markets with money. One can expect the Federal Reserve and US government to approve – as they should. Now is not the time to follow the Euro playbook or worry about export competitiveness. As followed on each of the above crises, lending freely is the route to recovery.</p>
<p>However, one could be excused for wondering how we got here – addicted to bubbles and bail-outs. In this light, one can view the current market situation through three lenses, to get a successively broader take on where we stand today.</p>
<h2>How we got from there to here</h2>
<p>First, in the short run, a Chinese slowdown has been apparent for some years – as has been an American recovery. In this light, some flight from Chinese markets and assets was to be expected – leaving monetary policymakers facing the difficult challenge of engineering a global “soft landing”.</p>
<p>This dilemma echoes the Asian crises of the 1990s: when US growth increased in the mid-1990s, the Greenspan Fed raised interest rates. In response, investors shifted money from Asia to the US – with early Asian declines over 1997-1998 assuming a self-reinforcing momentum.</p>
<p>In recent months, the Yellen Federal Reserve has been aware of the danger of history repeating itself. In this light, Black Monday 2015 will likely see the Yellen Fed back away from its plans to begin raising interest rates next month. This should help revive global markets.</p>
<p>Secondly, in the middle run, China has itself faced over the past decade the challenge of overcoming what former World Bank president Robert Zoellick termed a “middle-income trap” – in which investment-led growth hits an upper bound. To move beyond that limit, China faces the challenge of promoting domestic demand as a new basis for sustained growth. However, measures that would enable such shifts might entail strengthening labour unions and raising wages and prices – sparking the sort of inflation that Chinese leaders fear may undermine their legitimacy. In this light, we may know how to recover, but reform poses a bigger challenge.</p>
<p>Thirdly, over the long run, we can view this second “Black Monday” as demonstrating the extent to which asset-price bubbles are not a “bug” but rather a “feature” of the current system. </p>
<p>Over the post-World War II Keynesian decades, wage and price growth provided the foundation for sustained demand and growth – at the ongoing cost of accelerating wage-price inflation. By the early 1980s, governments around the world sought to crack the back of inflation by breaking labour’s market power. </p>
<p>For example, in the US and UK, Reagan and Thatcher employed recessionary policies and legal assaults to break unions. In Australia, the Hawke-Keating <a href="http://www.smh.com.au/federal-politics/political-news/30-years-on-accord-deal-a-bitter-time-says-kelty-20130530-2nfes.html">Prices and Incomes Accord</a> sought a more negotiated route to wage-price stability. Yet it ultimately took Paul Keating’s “recession we had to have” of the early 1990s to dampen wage pressures.</p>
<p>In this light, one might finally note that <a href="http://press.anu.edu.au/apps/bookworm/view/Delivering+Policy+Reform%3A+Anchoring+Significant+Reforms+in+Turbulent+Times/5471/ch04.xhtml">Paul Kelly-styled praise for 1980s-1990s market reform</a> in Australia or similar claims for the alleged free market reforms of the Reagan-Thatcher years are more than a little misleading. We do not live in an era of self-regulating markets. There is no substantive difference between the fiscal accommodation of the wage-price spirals of the 1960-1970s and the monetary accommodation of the asset-price bubbles of the 2000-2010s.</p>
<p>In this light, just as Black Monday 1987 may have demonstrated the weakness of relying on asset-price increases to sustain growth, Black Monday 2015 – coming seven years after the global financial crisis – demonstrates the difficulty of constructing an alternative order, one that might enable stable growth.</p><img src="https://counter.theconversation.com/content/46620/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Wesley Widmaier receives funding from the Australian Research Council.</span></em></p>In the shadow of a history-repeating Black Monday, it’s useful to step back and ask how we got here again.Wesley Widmaier, Australian Research Council Future Fellow, Griffith UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/378492015-02-23T06:00:17Z2015-02-23T06:00:17ZProductivity Commission childcare report shows blind faith in market<figure><img src="https://images.theconversation.com/files/72712/original/image-20150223-21907-1n18v1m.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The Productivity Commission's report on childcare will help inform the Abbott government's soon-to-be-unveiled 'families package'.</span> <span class="attribution"><span class="source">AAP/Paul Miller</span></span></figcaption></figure><p>The Productivity Commission’s <a href="http://www.pc.gov.au/inquiries/completed/childcare/report">final report</a> on childcare and early childhood learning has been a long time coming. Its recommendations will now <a href="http://www.theleader.com.au/story/2897050/learning-curve-morrison-says-productivity-commissions-childcare-report-a-key-input-to-governments-families-package/">reportedly</a> form a key part of the Abbott government’s promised “families package”. </p>
<p>So far, most of the response to the report has focused on the shift in funding models and its recommendation of a single means-tested subsidy paid directly to the childcare service. Little attention has been paid to many other recommendations that radically shift the basis of funding and types of services. It is particularly important to examine the assumptions on which its recommendations are based.</p>
<p>Many of the proposals derive from assumptions that the funding of these services should ensure minimal interference, with a classic, market-based model for meeting “demand”. These assumptions ignore the Productivity Commission’s evidence that the current market-based supply of services is not responding adequately to non-mainstream parental needs. </p>
<p>These concerns were clearly articulated by families as part of the reason for setting up the inquiry. Most parental submissions and parent groups claimed that there were:</p>
<ul>
<li>inadequate places for children under two; </li>
<li>maldistributed locations of services – so some areas, for example the inner city, lacked places; </li>
<li>costs were often too high in areas with fewer places;</li>
<li>a lack of flexibility; and</li>
<li>many good services had long waiting lists. </li>
</ul>
<p>As the Productivity Commission’s terms of reference acknowledge:</p>
<blockquote>
<p>The child care and early learning system can be improved because families are struggling to find quality child care and early learning that is flexible and affordable enough to meet their needs and to participate in the workforce.</p>
</blockquote>
<p>None of these issues have been addressed per se – except by adding <a href="http://www.smh.com.au/federal-politics/political-news/nannies-and-a-single-payment-recommended-by-childcare-report-20150219-13jc0n.html">nannies to the mix</a>, which raises other issues. The Productivity Commission’s <a href="http://www.pc.gov.au/inquiries/completed/childcare/report/childcare-volume2.pdf">view</a> on these areas is that the market will provide if some parents improve their demands:</p>
<blockquote>
<p>In Australia, ECEC [early childhood education and care] services are supplied under a market model, with services delivered by mostly non-government providers on a fee-for-service basis. Governments continue to have a major role in funding, regulating quality and, in some cases, providing services.</p>
<p>Choice is a key benefit of a market-based model. In most markets, parents have some capacity to choose between similar providers and there is competition. </p>
<p>Because long day care providers commonly cross-subsidise fees, parents may not realise the full cost of the services they use and the allocation of childcare places is unlikely to be efficient. Services for children two years and under tend to be under-priced, meaning that parents demand more services than they would if fees reflected the full cost of delivering services. </p>
</blockquote>
<p>There is never any acknowledgement that parental “choice” is seriously inhibited by the lack of services in many areas of high need. </p>
<p>The final point above is a bizarre illustration of market solutions. It assumes that higher costs would reduce demand, disposing of the problem. This fails to deal with the needs of those whose parental leave expires well before children reach the three-year-old stage. </p>
<p>Despite statements that under-twos cost twice as much as over-threes, the proposed fee for younger children is set for under-threes and so is little more than the next age group. This may be the result – albeit unacknowledged – of the lack of data on GDP-based benefits for under-twos in care.</p>
<p>Similarly, the proposed withdrawal of any government funding for non-disadvantaged children, whose primary carer has no workforce needs, makes it clear that public childcare funding is available only for economic, not social, needs. If there is no increased GDP output, there is no need for care. </p>
<p>This exclusion of children currently entitled to support entirely removes the original social functions of local children’s services as part of a community that supports families’ other needs. </p>
<p>Another economic absurdity that ignores children’s needs is the Productivity Commission’s critique of parents who fail to move children to cheaper services because of needs for relationship stability, thus undermining competition.</p>
<p>The hardline market approach is further reinforced by the punitive proposals that non-profit services lose tax-deductible donor status and payroll and other exemptions. The ill-founded assumption here is that because they often use these funds to “cross-subsidise” fees and upgrade services, they are ruining the commercial price signals – and presumably the profits of investors. </p>
<p>The above points illustrate serious flaws in the Productivity Commission’s approach. This raises issues both about the market model and the wider recommendations being offered. These issues highlight the differences between a community service model and a commercial one, as well as indicating that a pure market model doesn’t work.</p>
<p>Given that this area receives A$7 billion annually, the government should address identified market failures by devising a hybrid approach that would mix aspects of the market approach with conditional funding tied to meeting child and community needs.</p><img src="https://counter.theconversation.com/content/37849/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Eva Cox does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Many of the Productivity Commission’s proposals derive from assumptions that the funding of these services should ensure minimal interference, with a classic, market-based model for meeting “demand”.Eva Cox, Professorial Fellow Jumbunna IHL, University of Technology SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/285622014-07-04T10:54:52Z2014-07-04T10:54:52ZWhy constant surveillance is necessary in a society built on self-interest<figure><img src="https://images.theconversation.com/files/52948/original/fwp887kj-1404379842.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Every angle covered</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/koonce/4840305481/in/photolist-67hzYN-8nHQbM-9aFaDw-f8pcbJ-7izKkz-fHVaS4-gdF7fv-nPDcKQ-NzMqF-fB7y2a-5rsWWT-aMjweX-2mvLfi-aoUDwt-cDVBmE-ee4riw-kJW98e-eYYgcG-8zWfaU-bH4H5V-3nKyg1-bjKAss-9YRMcd-jXQvF7-2MTi3-5sQvXb-5Mj2k-e4VwZ-57SkMD-8Sd5t-haSZYg-8ZVbfJ-kWreUx-cZ7CK-4VBd85-fHVaGp-JWiN-6JCeDD-cA9JQN-arb5S-8P2V4w-3arbaW-fNPtiY-5sbtwd-5P3zkP-6nQEBF-8QYjCr-5G6md6-2eui6R-2Ds9Sm">Josh Koonce</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span></figcaption></figure><p>If you want to know why we in the UK see more security cameras on street corners than other nations, and why <a href="http://www.bbc.co.uk/news/uk-politics-28006739">politicians are fending off accusations</a> of spying on their own citizens, then turn your eyes to an obscure conference of intellectuals in pre-war Paris. </p>
<p>In 1938, at the <a href="http://en.m.wikipedia.org/wiki/Colloque_Walter_Lippmann">Colloque Walter Lippmann</a>, neoliberalism was launched. The societal structure developed from this form of political economy implicitly – albeit inadvertently – laid the conditions for a form of “surveillance state”; the kind that encouraged Edward Snowden to turn whistle-blower and <a href="http://www.theguardian.com/world/the-nsa-files">give us all a startling glimpse</a> of its implications.</p>
<p>In his 1944 book <a href="http://www.press.uchicago.edu/ucp/books/book/chicago/R/bo4138549.html">The Road to Serfdom</a>, one of the participants at the conference, <a href="http://www.econlib.org/library/Enc/bios/Hayek.html">Friedrich von Hayek</a>, built on the ideals of neoliberalism to contend that freedom for the individual could be maintained only where the means of production were divided among many people, rather than concentrated in the hands of “planners” who ran the state.</p>
<p>The concerns raised in a Europe ravaged by war found their echo in America. It was proposed Hayek write a follow-up aimed at the US audience, The American Road to Serfdom. Hayek declined but <a href="http://www.econlib.org/library/Enc/bios/Friedman.html">Milton Friedman</a> rose to the challenge in 1962 with <a href="http://books.cat-v.org/economics/capitalism-and-freedom/title">Capitalism and Freedom</a>.</p>
<h2>The sufficiency of self-interest</h2>
<p>Friedman argued the highest ideal for which society might strive is freedom. Other virtues are the responsibility of each individual to own or to reject as they see fit. He recognised this did not overcome the basic problem of how to coordinate individuals into a society from which all would benefit. Therefore, Friedman suggested cooperation could be based on self-interested individuals trading in markets. This is based on Adam Smith’s observation that:</p>
<blockquote>
<p>It is not from the benevolence of the butcher, the brewer or the baker, that we expect our dinner, but from their regard to their own self-interest</p>
</blockquote>
<p>Friedman reckoned individuals’ self interest would be checked by the supposed objective power of the market’s “invisible hand”, and constrained by the “rest of us” so as to promote social progress. Therefore, in a neoliberal world, coercive power operates through <a href="http://loicwacquant.net/assets/Papers/CRAFTINGNEOLIBERALSTATE-pub.pdf">manipulation of market incentives and regulations backed up by the threat of sanctions</a>.</p>
<h2>Expanding the coercive state</h2>
<p>The need for self-interested but free individuals to be constantly regulating each other to promote social good explains the seeming paradox that, as the state withdraws from the economy in line with neoliberal theory, <a href="http://www.prisonreformtrust.org.uk/Portals/0/Documents/Prisonthefacts.pdf">its role in criminal justice expands</a>. Where the actions of some have adverse social consequences, the state must attempt to disincentivise them through <a href="http://www.policy.manchester.ac.uk/resources/regulation/">regulation</a> and punishment. And this, of course, requires rigorous detection and monitoring. </p>
<figure class="align-left zoomable">
<a href="https://images.theconversation.com/files/52951/original/bq8495c6-1404382100.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/52951/original/bq8495c6-1404382100.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/52951/original/bq8495c6-1404382100.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=600&fit=crop&dpr=1 600w, https://images.theconversation.com/files/52951/original/bq8495c6-1404382100.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=600&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/52951/original/bq8495c6-1404382100.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=600&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/52951/original/bq8495c6-1404382100.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=754&fit=crop&dpr=1 754w, https://images.theconversation.com/files/52951/original/bq8495c6-1404382100.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=754&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/52951/original/bq8495c6-1404382100.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=754&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Shedding some light.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/rnddave/11297569096/in/photolist-idjZG5-576iWJ-8DBQRL-7Y6bBE-8TW6VA-391TRa-gUSicP-crAnWQ-mCxyZH-9tvFr4-9AdCqY-83KZo6-3ddx5-brk3Fg-aDcD9B-dWKUuq-dWEork-dWL26f-dWEibD-dWKUUw-dWErE6-dWKT8U-dWL4LN-dWKVmf-dWKVE1-dWKX9E-dWKU2L-dWL3uE-dWKSJf-aiqkZv-bqzwWr-8DBMsq-aaRnuz-9QqR8h-fvJfjW-5QHcQk-abtJou-gxZa6-9z7ZLf-8bNSbx-8merrs-cELg6m-iRyqaH-4BnF64-9Krfem-jXtiMZ-92BvDi-e4bire-4wna9m-3Bm1H">DaveOnFlickr</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>In England and Wales, for example, the attempt to regulate behaviour has led to 1,472 new imprisonable offences being created by parliament <a href="http://www.publications.parliament.uk/pa/ld200809/ldhansrd/text/90518-0009.htm">between 1997 and 2007 alone</a>. To encourage compliance, the UK has between 4.9m and 5.9m security cameras – the vast majority of them <a href="http://www.bsia.co.uk/app/images/spectrum/bsia-spectrum-january-2014.pdf">privately owned</a>. This surveillance of public spaces is complemented by <a href="https://www.privacyinternational.org/press-releases/uk-intelligence-forced-to-reveal-secret-policy-for-mass-surveillance-of-residents">online surveillance</a>. </p>
<p>Yet, despite all this, the UK is a <a href="http://www.telegraph.co.uk/news/uknews/law-and-order/5712573/UK-is-violent-crime-capital-of-Europe.html">relatively high crime nation</a> and has the <a href="http://news.bbc.co.uk/2/shared/spl/hi/uk/06/prisons/html/nn1page1.stm">highest imprisonment rate</a> in Western Europe. </p>
<p>The UK is not alone in facing this conundrum; there is <a href="http://www.uk.sagepub.com/cavadino/penal_policy_and_political_economy.pdf">international evidence</a> that neoliberal states are relatively more punitive than nations which adopt other ideologies. This might be because neoliberalism is associated with higher <a href="http://hmb.utoronto.ca/HMB303H/weekly_supp/week-08-09/Coburn_Beyond.pdf">social inequality</a> and relatively poor <a href="http://www.uk.sagepub.com/cavadino/penal_policy_and_political_economy.pdf">welfare support</a>, both, arguably, drivers of crime. </p>
<h2>It’s a tragedy</h2>
<p>On the jacket notes of first edition of The Road to Serfdom, written to promote liberty, Hayek asked (rhetorically):</p>
<blockquote>
<p>Is there a greater tragedy imaginable than that in our endeavour consciously to shape our future in accordance with high ideals we should in fact unwittingly produce the very opposite of what we have been striving for?</p>
</blockquote>
<p>It is similar concerns for liberty which encouraged Snowden to turn whistleblower; and the underlying tension between individual and social good highlights the crucial question of whether freedom is possible without self-restraint acting as a check of self-interest. </p>
<p>All states rely, to one extent or another, on ethics to check self-interest, complemented by criminal justice sanctions and intelligence. However, by emphasising self-interest pursued in free markets, neoliberalism discourages the former and encourages the latter. It all means that in an effort to promote overall social good – often interpreted as <a href="http://www.britishpoliticalspeech.org/speech-archive.htm?speech=351">maximising economic growth</a> – many of our freedoms and liberties may be compromised; our every step in the High Street can be watched, and every email scanned. </p>
<p>Irrespective of whether we should be concerned by the UK’s possible claim to be the <a href="http://www.theguardian.com/world/2013/oct/03/edward-snowden-files-john-lanchester">most spied upon democratic society</a> in history, this state of affairs certainly is not within the spirit of individual freedom envisaged by Friedman.</p><img src="https://counter.theconversation.com/content/28562/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Kevin Albertson does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>If you want to know why we in the UK see more security cameras on street corners than other nations, and why politicians are fending off accusations of spying on their own citizens, then turn your eyes…Kevin Albertson, Reader in Economics, Manchester Metropolitan UniversityLicensed as Creative Commons – attribution, no derivatives.