[p2p-research] what to think of the market

[Ryan Lanham]

Hi Michel:

I wish I had written it myself.  Excellent points all.

Ryan


On Mon, Jul 20, 2009 at 1:46 AM, Michel Bauwens <michelsub2004 at gmail.com>wrote:

> Hi Ryan,
>
> this is a contribution to our debate on the market, and I agree with the
> approach of Dean Baker:
>
> Dean Baker: the market is not the problem!!<http://blog.p2pfoundation.net/dean-baker-the-market-is-not-the-problem/2009/07/27>
> [image: photo of Michel Bauwens] Michel Bauwens
> 27th July 2009
>
>  Below is Dean Baker’s contribution<http://www.zcommunications.org/znet/viewArticle/21756>to the Re-Imagining Society debate at ZNet.
>
> *Dean Baker:*
>
> *“As every backcountry hiker recognizes, you must first know where you are
> before you can figure out how to get to where you want to be. While it is
> important to know where we want to go, progressives often badly
> misunderstand where we are now.*
>
> *Specifically, much of the anger of progressives is wrongly focused on the
> market, as though the market is the source of the troubles in the world.
> Progressive publications have featured endless diatribes against “market
> fundamentalism,” implying that the strict devotion to market principles is
> the core problem that we must counter.*
>
> *In fact, the market is not the problem. The market is a tool, like the
> wheel. It makes as much sense to attack the market as it does to attack the
> wheel.*
>
> *The problem is in how the market has been structured. The right has used
> its control of the government to structure the market in ways that
> redistribute income upward and produce many other bad outcomes, like poverty
> in the developing world and global warming.*
>
> *Progressives fall into the right’s trap when we imply that these outcomes
> are simply the result of the natural workings of the market, and that our
> opponents have a rigid adherence to market principles. Poverty and
> inequality are not inevitable outcomes of a market economy; they result from
> the fact that the market was rigged to produce these outcomes. Furthermore,
> our opponents absolutely do not have a rigid adherence to market principles.
> They have a rigid adherence to policies that redistribute income upward.*
>
> *Our efforts must be focused first and foremost on combating the ways in
> which the wealthy have rigged to the deck to ensure that the market will
> favor their interests. This is the best immediate path forward and will also
> provide the basis for a clearer understanding of where we might ultimately
> hope to go.*
>
> *How the Wealthy Rig the Deck*
>
> *Conservatives are fond of highlighting the self-made person: someone who
> starts from humble beginnings and through talent and hard work manages to
> accumulate enormous wealth. While their poster children may be genuinely
> talented and hardworking, behind any “self-made” person one can almost
> always find the big hand of the government.*
>
> *For example, Bill Gates rise from moderate affluence to incredible wealth
> was only possible because of government granted copyright monopolies on
> computer software. The government would arrest anyone who makes and
> distributes copies of Windows and other Microsoft software without Bill
> Gates’ permission. As a result of this copyright monopoly, Microsoft became
> one of the most profitable companies in the world as the use of personal
> computers exploded over the last quarter century.*
>
> *While conservatives would have us believe that copyrights came down from
> heaven, in fact, copyrights are a form of government granted monopoly. They
> serve an important public purpose; they provide an incentive for creative
> and artistic work, but this does not change the fact that copyrights are
> instruments of government policy, not inherent attributes of a market
> economy.*
>
> *Real market fundamentalists do not believe in copyrights. They believe
> that the market will provide sufficient incentives to promote creative work
> without government granted copyright monopolies. If the country were
> actually run by market fundamentalists, then Bill Gates would have to work
> for a living.*
>
> *The same applies to patent protection. This is most important in the case
> of prescription drugs. The United States now spends more than $250 billion a
> year on drugs ($3,200 for a family of four). These drugs would cost about
> one tenth of this amount in the absence of patent protection.*
>
> *This is demonstrated by the fact that many chain drug stores now sell
> thousands of generic drugs for $4 a prescription and sometimes less. The
> drugs available at $4 per prescription are not chemically distinct as a
> group from the brand drugs that can sell for hundreds of dollars per
> prescription. The only difference is that the latter are subject to patent
> monopoly protection by the government.*
>
> *This is not only a question of dollars and cents; it is a question of
> lives, especially in the developing world where patent protection often
> makes drugs unaffordable for much of the population. However, even in the
> United States millions of people have great difficulty paying for drugs they
> need for their life or health.*
>
> *Patent protection does serve an important purpose in providing an
> incentive to develop new drugs, but again this is a question of public
> policy, it is not an intrinsic feature of the market. There are other, far
> more efficient ways to support research into the development of new drugs.
> For example, we could set up prize funds to reward important innovations as
> has been proposed by Nobel Prize winner Joe Stiglitz and others.*
>
> *We could also just have the government pay for the cost of developing
> prescription drugs up front, as it does when it pays out $30 billion a year
> for biomedical research conducted by the National Institutes of Health. In
> either case, once the research is funded, the drugs developed could then be
> sold in a competitive market for $4 per prescription, just like generics.*
>
> *Of course, these mechanisms would likely mean much lower profits for
> Pfizer, Merck and the other big pharmaceutical companies. But Pfizer, Merck
> and their political allies are not being market fundamentalists. They are
> fighting to protect government intervention that benefits them.*
>
> *The government granted monopolies through “intellectual property” are far
> from the only mechanism by which the government redistributes income upward.
> The collapse of the financial sector and the subsequent government bailout
> revealed a whole set of implicit guarantees that supported the profitability
> of the financial industry. Lenders could feel safe in lending money to Bear
> Stearns, AIG, Citigroup and the rest (except Lehman) because they correctly
> believed that the government would never allow these financial giants to
> fail.*
>
> *This guarantee meant higher returns for bondholders, since the government
> effectively subsidized their investments. More importantly, it allowed for
> the top executives at the banks to earn enormous pay packages, since the
> government was giving them a guarantee that allowed them to speculate with
> other people’s money. The Wall Street crew might mutter about deregulation
> and letting the market take its course, but in reality they are big-time
> dependents of the government. To the financial industry, “deregulation” just
> means that they want their government subsidies with no strings attached.*
>
> *In fact, at an even more basic level, the corporation itself is a
> creation of the government. Individuals can act on their own to form
> partnerships, but the creation of an entity that has a completely distinct
> legal status from its owners requires the intervention of the government.
> Corporate charters were originally only granted to companies that were
> deemed to fulfill a specific social purpose such as improving transportation
> by building turnpikes, canals, and railroads or expanding trade.*
>
> *This point is important. The creation of corporations, like copyrights
> and patents, were explicit government policy. They are not intrinsic to the
> market. Genuine market fundamentalists wouldn’t want to see the government
> granting legal personage and limited liability to artificial entities like
> corporations. Market fundamentalists would want individuals to freely
> associate in business as partnerships that don’t receive special privileges
> from the government.*
>
> *The structure of international trade is also determined by the
> government. The so-called “free trade” agenda of the last three decades in
> reality has almost nothing to do with free trade. A main purpose of U.S.
> trade policy has been to put U.S. manufacturing workers in direct
> competition with low-paid workers in the developing world. This predicted
> effect of this policy is to lower the wages of manufacturing workers and
> non-college educated workers more generally. By depressing the wages of
> these workers, as well as the prices of the goods and services that they
> produce, this trade policy raises the real income of highly paid
> professionals and those who get their income from capital. (If they pay less
> for manufactured goods, and their income stays the same, then their real
> income rises.)*
>
> *The structure of labor-management relations is another area of explicit
> government intervention. If a union organizes its members to support the
> strike of another union (i.e. a secondary boycott), the government will fine
> the union and arrest its leaders. Free market fundamentalists should have no
> objection to one group of workers opting to support another group of
> workers. Once again, the policy in place has the effect of hurting ordinary
> workers to the benefit of corporations, even at the expense of undermining a
> commitment to the freedom of individuals.*
>
> *Even the idea that the market fundamentalists refuse to consider
> externalities can readily be shown to be utter nonsense. The market
> fundamentalists absolutely insist on zoning restrictions that prohibit the
> building of a slaughterhouse or steel factory in high-income neighborhoods.
> In fact, they generally support zoning that prohibits low-income housing in
> their neighborhoods. They fully recognize the concept of externalities and
> the role of government in controlling them. They just don’t want the
> government restricting externalities in ways that reduce corporate profits.
> *
>
> *In almost every area of public policy it is easy to show that the market
> fundamentalists do not really favor leaving outcomes to the market. Rather
> they want to set in place a structure that ensures market outcomes will
> favor the wealthy. When progressives respond by criticizing the market, we
> pursue a path this is both conceptually wrong and politically disastrous.*
>
> *Market outcomes, as opposed to government directed policy, enjoy
> substantial legitimacy among the public. Conservatives know this and milk
> fears of stifling government bureaucracies to great effect. Rather than play
> into the conservatives’ trap, progressives should actively promote polices
> that structure the markets in ways that help the vast majority, instead of
> causing income to flow upward.*
>
> *For example, we should reject copyrights and drug patents as archaic
> mechanisms for supporting creative work and innovation. It easy to develop
> market oriented policies that will more effectively promote creative work
> and innovation and that are less likely to lead to vast fortunes being
> accumulated in these areas.[i]*
>
> *These policies will also have the enormous advantage of making the
> world’s vast intellectual output available to everyone everywhere at almost
> no cost. Imagine children in even the poorest developing countries being
> able to get access to the web on computers or cell phones that are very
> cheap, because they use open source software. Suppose they can then download
> at no cost any book, newspaper, or journal article that has ever been
> written, as well as any song, movie, or video. This would be a free market
> outcome.*
>
> *Suppose that the most effective drugs for treating any disease were
> available at just the cost of manufacturing them, which would rarely be more
> than a few dollars per prescription. Similarly, the price of most medical
> tests and equipment would plunge to levels that made them seem unimportant,
> if we had a free market in these areas rather than government patent
> monopolies.*
>
> *We could quickly deflate the Wall Street boys and girls by taking away
> their government security blanket. The obvious story here is that the
> institutions that are “too big to fail” are run by the government, as is the
> case now with Fannie Mae and Freddie Mac. Otherwise, there should be a
> credible commitment from the government that if large institutions get into
> trouble, then they will fail and that their creditors will be out of luck.
> *
>
> *With corporations more generally, it is evident that the existing rules
> are poorly designed for the current economic environment. Management has
> come to control corporations and run them in their own interest, to the
> detriment of the shareholders and other stakeholders (at least in the United
> States). There are already elaborate rules on corporate governance that set
> restrictions on what the insiders are allowed to do. These rules can be
> restructured to limit the power of top corporate management, most
> importantly the power to largely set its own pay.*
>
> *If rules of corporate governance required that compensation packages of
> top executives were regularly sent out for shareholder approval, in
> elections in which unreturned proxies do not count (it is currently standard
> for management to count proxies that are not returned by shareholders as
> supporting its position), it is likely that the multi-million dollar pay
> packages of top executives would come back down to earth. The elimination of
> bloated executive compensation packages in the corporate sector is also
> likely to bring downward pressure on pay for top officers in hospitals,
> universities, and even non-profits, since all of these institutions have
> felt the need in recent decades to raise pay in order to stay in line with
> the corporate world.*
>
> *Trade can also used as a force to reduce inequality in the wealthy
> countries and promote development in the poor countries. Current trade
> policy only forces non-college educated workers to compete with their
> low-paid counterparts in poor countries. However, we can also adopt “free
> trade” policies that are structured toward putting our most highly paid
> professionals (doctors, dentists, lawyers, accountants) into direct
> competition with highly paid professionals from the developing world.*
>
> *It is far cheaper to educate and train a doctor in the developing world
> than in the United States. If honest economists were designing trade policy,
> they would have focused on opening the door to professionals from the
> developing world rather than creating structures to facilitate trade in
> manufactured goods. Our policy should be focused on making it as easy for a
> smart kid growing up in India or China to educate themselves to U.S.
> standards and practice medicine and law in the United States, as it is for a
> kid growing up in the Los Angeles suburbs.*
>
> *To ensure that developing countries benefit from this arrangement, a fee
> can be attached to the pay of professionals trained in the developing world,
> which will be paid to the home country. Given the outsized professional
> salaries in the United States even a modest fee should be sufficient to pay
> for the training of 2-3 professionals for every one that comes to the United
> States. This should allow for better health care and other professional
> services in the developing world, while hugely reducing the cost of medical
> care and other professional services in the United States.*
>
> *Another important change in government policy would be to have a central
> bank (the Federal Reserve Board in the case of the United States) that is
> more committed to sustaining high rates of employment than an arbitrary rate
> of inflation. In addition to the strains directly associated with being
> unemployed, high unemployment also puts downward pressure on the wages of
> those at the middle and bottom of the wage distribution. If the Fed
> consistently pursued monetary policies that were intended to keep the
> unemployment rate low, it would create an economic environment that made it
> easier for large segments of the workforce to enjoy rising living standards.
> *
>
> *There are many other policies that can be added to this list, but the
> point is that these are all market-oriented policies that will help to
> ensure progressive outcomes such as greater equality, better access to
> health care, and increased economic security. We should not be afraid to use
> the government directly where it provides the best solution. For example, a
> government run Social Security system is far better and more efficient than
> its private sector counterparts.*
>
> *However, this is not a matter or principle that separates progressives
> from conservatives. Over the last three decades Conservatives have
> aggressively used the government to structure the markets in ways that
> redistribute income upward. If we don’t recognize this fact and stop calling
> them “market fundamentalists” then all our visions will be illusions.”*
>
>
> --
> Working at http://en.wikipedia.org/wiki/Dhurakij_Pundit_University -
> http://www.dpu.ac.th/dpuic/info/Research.html -
> http://www.asianforesightinstitute.org/index.php/eng/The-AFI
>
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>
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>
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