The free market economy is a moral success, says Govert Buijs. But neoliberal thoughts and practices pose a threat to the “cooperative creativity” that is the basis of this success.

Over the last few decades we have seen a turbulent rise of “market thinking”. ‘Neoliberalism’ is a term that is often mentioned in this context. Its results are often considered to be quite negative: rapidly increasing inequality, greed dominating, financial crises, globalization breaking down national states and depriving people of their security, social organizations such as hospitals and schools that are only focused on profit instead of good service. The economy has become so ‘flexible’ that many people live with insecurity about their job, income and social position. Protest movements and anti-globalization movements like Occupy have not become big, but they are widely considered to be morally right. And look: the big protest in the form of populism, Brexit, Trump, Le Pen, indicates that there are serious problems with free markets.

The success of the market

As someone who has gained his political consciousness in the ‘left’ 1970s, I am intuitively inclined to share this analysis. Capitalism as the Great Evil. And yet… cracks have arisen in my conviction of moral truth.  The first crack was made when I realized around 2000 – working on a project on development cooperation – that the Korean girl for whom we dutifully collected money each week when I was in primary school now probably earned more than I did. South Korea had become a prosperous country in one generation – not because of my saved dimes or – later – my left-wing ideals. South Korea had joined the world market – morally reprehensible, but apparently quite effective. China is currently also following this track.

A second crack was caused by one of my students from India. Still at the airport the first thing he said was: ‘Thank you for all these nice jobs we are getting from you’. In his hometown Bangalore many jobs exist thanks to Western companies outsourcing their work. They were – under loud protest – moved to ‘low wage countries’. But should this not be considered true development cooperation: real jobs transferred from here to there? Global redistribution, a left ideal, takes place right under our own eyes – but though a ‘right’ mechanism, through the market. After centuries of inequality, five non-Western countries have now penetrated the top 10 of the world’s largest economies.

A third crack occurred when I realized that from early age onwards I had heard almost exclusively messages about jobs being lost. Everyone in the Netherlands and far beyond would, when we make the calculation, have been unemployed by now. But the opposite is the case: usually only five percent of people is unemployed, with occasional peaks. In the past forty years it has even proved possible for a large amount of women and immigrants to enter the labor market. Is that the neoliberal race to the bottom?

A fourth crack concerns hunger. Around 1975 the world had about 4 billion people, of whom about 900 million were structurally malnourished (25%). At the same time the world population grew rapidly. If food production had remained at the level of 1975, now, with 7 billion inhabitants on the planet, nearly 4 billion people would be structurally malnourished (or would have died for this reason). But this is not the case: in absolute terms the number of malnourished people has fallen sharply, and is now below 800 million (about 12% of the world’s population). In addition, 3 billion (!) extra mouths are being fed in comparison with 1975. Obesity is now almost a more serious health problem!

On balance the development of the world economy over the last 40 years should be evaluated positively. That takes some time to get used to.

Cooperation and creativity

Precisely because of the (moral) success of the market it is very important to see what exactly makes this the case. Since one and a half century ago one narrative has become dominant, namely that the market operates on the basis of all participants being focused on their self-interest: ‘Greed is good.’ This is also the cause of the bad moral reputation of the free market. Which gets, moreover, times and again confirmed by incidents which receive a lot of attention in the press, or even by a financial crisis: how perverse, this greed!

Yet from an empirical perspective something strange is going on here. Each business is – however you look at it – a collaboration of people. Collaboration is impossible if people are purely focused on limited self-interests. In addition countries in which people trust each other and wish to cooperate (‘high trust societies’) fare economically far better than countries in which people put individual or group interests first (‘low trust societies’). So is it true that markets depend on the maximization of self-interest? Or is the narrative of self-interest a recent thin ideological layer added on top of a completely different empirical practice – a parasitic story?

Older views on what a market is rightly emphasize its co-operative nature. Markets allow people the opportunity to develop their own talents – a moral value – while aligning the development of their talents to the needs of fellow human beings – another moral value. The core of an economy is in this view exactly the cooperation between people, connected with creativity: new ideas become successful because they better serve human beings.

There are of course disadvantage to the process of creative destruction. The baker who supplies inferior bread loses his job. The customers will go to his colleague. That hurts. In the Netherlands, 3000 people work in coal-fired power plants. We want to close them – for good reasons. These people lose a fair job (and not even ‘low-wage countries’). Development has painful sides. These painful transitions require much more attention than they get now: the Dutch unemployment benefits are much too short as a compensation for the experiences of grief and loss of meaning associated with job loss. New public creativity is needed here, such as a basic income or the variant that I myself advocate, a ‘participation wage’.

Loaded with debt

A cooperative-creative market does not work automatically and does not work anywhere. Markets work better to the degree that the situation of market parties is symmetrical, worse when it is asymmetrical. In some sectors there is always asymmetry: in care, for example, and in education. A market-like setting can easily lead to exploitation and mutilation. In the Netherlands, for example, 16,000 appendix operations are performed annually, while some 13,000 of them may also be treated with medication. The market always focuses on transactions, not doing nothing, while in health care that is sometimes better. Market forces therefore do not belong everywhere.

Secondly, a moral embedding of markets is essential – and there is a lot of empirical evidence for it. Markets function when people are accustomed to sticking to rules, are not corrupt, trust each other, giving each other something – in short, where ‘co-operative virtues’ are practiced.

Thirdly, markets function well when there is a good relationship between the real economy and the financial economy. Over the past few decades an enormous financialization of the economy has taken place, accompanied by a huge growth of debts. Everything of value is charged with debts and that creates new power structures. World debt and derivates based on it are now fifteen times as high as the amount of money which exists worldwide in the real economy ($80 trillion at 1200 trillion, i.e. 1.2 trillion, 1,200,000,000,000,000). Most of it has been created only in the last fifteen years! How can this ever be earned back? Investor Warren Buffet speaks of “financial weapons of mass destruction” in this context. The consequences of a really big financial crisis, bigger than we have experienced today, can be immense – precisely for the real economy, for the free market. Meanwhile they are already immense for those countries and people who are deeply in debt and sometimes hardly see ways to get out of it.

Neoliberalism

Critics of ‘market forces’ often do not manage to utter a single positive word about markets. ‘The market’ is in their eyes a huge conspiracy to exploit large masses of people and make only a few people extremely rich. That does not help us make progress in this debate. A kind of unspoken radical Marxism always lurks in the background.

My proposition would be that the core of the idea of ​​a free market is morally very defensible. As a next step it seems essential to me to ask what is needed for the proper functioning of markets. And what do we then discover? The fact that the so-called ‘neoliberal’ view, which puts the individual maximization of preferences or short-term self-interest central, undermines the proper functioning of the free market. If indeed creative co-operation is at the heart of the economy – creating win-win situations – then it is disastrous to focus on the credo ‘greed is good’ in, for example, our economics and business education and in the financial sector. This stimulates out distrust – while high trust is an essential prerequisite for the free market.

Distrust is also fueled by excessive inequality (as recently argued by French economist Thomas Piketty). Inequality does not seem a moral problem to me, as long as there is no real poverty. But inequality is indeed a social problem: to make a free market also a well-functioning market everyone must see himself as ​​fairly sharing in the returns. In this respect, we see a remarkable phenomenon: contrasts between poor and rich, which decrease between countries, now return within many countries. A rich segment of the population benefits greatly from the connection to the global economy, a substantial part of the population does not. This partly explains the rise of populism. For this reason a certain degree of income policy is very good for the functioning of the market.

European variant

What I advocate is, in fact, a new appreciation for the ‘Rhineland’ model of a social market economy vis-à-vis Anglo-Saxon capitalism. It is remarkable that precisely in Europe, as a whole by far the largest market in the world, has not been able or willing to self-confidently develop its own variant of capitalism on an intellectual level and continually follows the latest Anglo-Saxon fashions.

A European variant could develop its own ways to deal with the financial sector, which is out of control. A European variant could develop its own ways of dealing with the permanent “transition uncertainty” that is unavoidably part of the market (closure of coal-fired power plants or the fortunate shift of jobs to low-wage countries). We need to think about a system of basic incomes or, alternatively, ‘participation fees’.

England, with the crypto-socialist Blair, has taken the European debate hostagefor a long time. The Brexit may be a chance to finally work on a social free market, a ‘capitalism with a human face’, or whatever one wants to call it: the further humanization of the economy. Because we people have an economy, the economy does not have us – or that is how it should be.

This article is a translation of a piece by Govert Buijs that appeared in the August issue of the Dutch magazine Volzin.

Also available in: Dutch