On a couple of occasions in the last week I have had to make clear that in my opinion the political left in the UK should not have problems with the idea of markets. I do not have any such problem.
I do have problems with market abuse. That happens when a natural monopoly is privately owned, or is in the ownership of a few private operators. That's always a recipe for abuse and many former state owned businesses are now run in this way.
I also have problems with entirely artificial markets, such as the NHS internal market.
And I have problems with rigged markets. That can just be the result of corruption, opacity or the consequence of unaddressed tax abuse. Such markets always concentrate wealth unjustifiably.
And markets without progressive income and wealth taxes have the same unjustified outcome.
So my belief in markets is conditional, as should anyone's be, in my opinion. But, if these issues can be addressed (and that is entirely possible to do with the appropriate political willingness) then there is no doubt markets gave an essential role in society.
To imagine why just imagine all businesses in a community were cooperatively controlled. It is far from impossible to think of such a situation. This would then mean that the return to labour and not the return to capital was maximised. It would be a radically different situation from that we now have. But these businesses would still need a market to distribute their products and consumers would still need a market in which they could indicate their preferences. The alternative woukd be a command economy, which is something very different indeed, and which we know gets things horribly wrong.
So we need markets.
What we do not need is market abuse.
And I have always suggested that the tax justice movement has been one of the strongest proponents of fair markets in modern campaigns history.
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You do right to reinforce these points.
Markets are like religion in my view. They are an excellent idea until certain kinds of people get involved. You only need a few bad apples to make a good idea cause problems.
After all the recent turmoil (with yet more predicted) when will our politicans go back to basics and start being vigilant again?
Lord knows they’ve had enough hints.
I would extend Richard’s point about Markets as follows: Markets for things we could survive without, Planning (as local as possible) and cooperation for essential goods and services.
The fundamental problem, however, is that the Shadow PM, Chancellor of the Exchequer, Home Secretary and Foreign Secretary (and their appointees and acolytes) do have a serious problem with markets. And it’s pretty clear that most of the other Labour MPs (whether Corbynistas, reconcilables or unreconcilables) have little understanding of the requirement for well-governed markets, policed by sufficiently empowered and resourced competition bodies and supplemented by effective economic regulation.
The energy (electricity and gas) market provides a perfect example. Fully justified public disgust and anger at the rip-off tactics of the Big 6 energy companies finally pushed the last government to consent to an inquiry by the Competition and Markets Authority (CMA). A major issue that emerged is that, as the PM put it recently, two-thirds of energy consumers are “stuck on the most expensive tariffs”.
There are a large number of reasons for the apparent refusal of so many consumers to switch to another supplier in pursuit of lower prices. Most of these have been investigated – and remedies proposed – during the CMA’s two-year inquiry. But one multi-facteded reason which is rarely explored is that many consumers have a deeply held belief that their continued loyalty to the supplier of a utility service should be rewarded. This is particularly true of older consumers who place a value on establishing stable commercial arrangements. Many of these consumers are disgusted and angered that not only is their loyalty not being rewarded but they are being penalised for it – and they are implicitly subsidising lower priced offers to consumers who switch to their supplier that are not available to them. This seems to offend the PM’s sense of fairness and she has indicated a policy response.
The energy suppliers have every incentive to exploit this “stickiness” of consumers (irrespective of what might be causing it) and their retail commercial strategies are built around doing so. In the earlier stages of its investigation the CMA considered imposing a cap on the energy (electricity and gas) prices that suppliers could charge households. Not surprisingly, this provoked enormous opposition from the suppliers and the armies of consultants, advisers, lobbyists, tame academics and functionaries they retain. The CMA retreated and eventually decided to impose a temporary cap on prices charged to households using prepayment meters – around 20% of households. A variety of other initiatives are being advanced to encourage switching by all other consumers.
It may be that over time, with increased switching, the ability of the energy suppliers to rip-off loyal or sticky customers will be reduced. But it is probably more likely that the energy suppliers will develop even more elaborate ruses to continue the rip-offs.
The only effective way to bring the energy suppliers to heel is to establish a public collective buyer and to require the suppliers to bid to supply shares of this demand. Although the PM has indicated that there will be a policy response (presumably in addition to the CMA’s remedies), it is unlikely that her disgust at the energy suppliers’ antics will encourage her to authorise such an approach.
This should be a perfect opportunity for Labour to set out a clear policy based on the effective use of markets, collective buying and appropriate economic regulation. But all we get is waffle about increased “democratisation” of energy supply from the Corbynistas and vague arm-waving about increased consumer-switching from the others.
It is interesting that in the US, following an initial thrust to roll it out nationally, retail energy competition exists in some form only in 14 states (plus DC). It has been rolled out and then rescinded in 8 states and is not available in the remaining 26 states of the contiguous 48. The general view is that the benefits which advocates claimed were not secured – or could not be secured – and numerous abuses occured.
The roll-out of retail energy competition in Britain has allowed the perpetration of one of the biggest rip-offs of households and small businesses in the modern era. And the irony is that the approach pioneered in Britain has been adopted and adapted throughout the EU.
This is only one of the many rip-offs that have contributed to the Brexit vote and the rise of right-wing populists in the rest of the EU.
Where is your evidence that the Shadow cabinet and we Corbynites do not understand markets? Because you have given none here.
Did I mention Corbyn, the shadow cabinet or Corbynistas?
I didn’t spot it
Richard-Carol is referring to Paul Hut’s post.
Ah…..I can’t see that when I moderate
Apologies for the apparent confusion. I was responding to Richard’s opening observation which indicates that the political left has problems with markets and he, quite rightly, is asserting that it (the political left) shouldn’t. I happen to agree – and agree even more strongly that market abuse should be rooted out and that well-governed market mechnaisms should be used even more widely . But we do have a Shadow Chancellor (who is, in effect, the real leader of the Labour party) who has a declared objective of “fermenting (sic!) the overthrow of capitalism”.
these are good points. In a way it is not possible to not have markets, even the Soviet system recognized markets at an international level.
A co-op system is very logical -Corbyn mentioned this as a model for renationalisation though we’ve heard little since.
A command economy, perhaps has its place when there is an ‘in extremis’ situation. For example, some have argued for this in relation to climate change. (www.theguardian.com/science/2010/mar/29/james-lovelock-climate-change) and it as an arguable point. During wars, command economies tend to work well in mobilising people quickly and getting banks to co-operate for socila purpose.
Simon
Believe it or not those who managed production within the Soviet Union believed that they were meeting the needs of their people so they even looked at that need as a market. They even produced a range of goods – not just one example – to meet choice.
The problem (amongst many) was that the feedback loops into the production of meeting these needs were extremely faulty – and this was driven by corruption, and a need to be seen to be having a good economic system in competition with the West (the bullshit factor where demand/production ratios were artificially ramped up to massage the figures and cover up problems). It is also fair to say that Soviet military spending and the raw materials to keep it going were like a sea-anchor on the rest of what was a more limited economy than Western countries.
However, the point for me is that I do not see anything different in the behaviours in the Soviet system and the say the financial or economic system we have today in the West where there has been rampant corruption and lying, where pricing and returns are too often wildly optimistic (‘irrational exuberance’) and where certain actors are engaged in turd polishing of the highest order.
Any system is open to abuse if certain people want to try. Those people – like those who run Goldman-Sachs – call such behaviour ‘market making’.
We just need to have the right people and the right means to deal with them when abuse is found. I do not think that we have got that far yet – more’s the pity.
I’m sorry that you can’t see the difference
I find the observation slightly absurd
In that case I have not written well enough to get my point across Richard.
I’m basically saying that in ANY system calling itself a market, a company – whatever – there is a tendency for people within in to behave in a certain way to put it across that the system they work in is healthy and working well – that it is flawless.
The way in which the Soviet leadership wished to portray the ‘success’ of their system is no different in my view to how say the banking system in the West wishes to portray the ‘success’ of its systems – no different within the broad parameters I have set out above. Both these behaviours hid huge underlying problems with the way in which their markets/system worked. In the end the Soviet Union collapsed and how many times did the financial markets run into difficulty since the early 1980’s? Look at the way the people at Enron behaved?
So we on the outside can see those deficiencies. Those within often cannot or will not because each systems demand compliance with the stated outcome.
I just see parallels in behaviour between the two which I have observed over the years to be there. Parallels that exist between the human actors in the economic/company systems I’ve identified. The results of wishful thinking, dogma, ideology preferred in the face of facts. Both systems suffered from irrational behaviours.
Which is why I’m saying any system (markets, companies) need to have someone watching over, setting rules that make it fair and sustainable, monitoring – in other words giving these systems integrity and limiting abuse which must be part of the design.
So although we have two different ideological and political systems (Soviet Russia % the West) – the human behaviours within them – that sustain them – are very similar. To me at least.
These views are not anti-market either. They are basis from which to improve them.
That makes more sense
Thanks
“This would then mean that the return to labour and not the return to capital was maximised.”
Self interest always rules? A dark view of humanity.
Non-government market abuse couldn’t occur without the control over capital. How to inject more democratic control over capital whilst retaining entrepreneurship is a key issue societies have to urgently get to grips with.
I think we have many examples of where the market does not work. Energy as picked on in one of the comments is a particular example. NHS is another. We need to recognise (like it or not) we are inextricably linked and cannot survive alone. There are thus, certain critical services our society needs to function well that should not be left to be run by the private sector. Our fuel should be centrally sourced and delivered – it should be there without the necessity to continually spend time seeking the cheapest alternative – such time spent is not a productive use of our society’s time – searching around continually on the internet for the best deal for an essential service we cannot do without does not add anything to the productivity of society or represent a useful use of a persons time when they are already busy.
I work for a venture capitalist – a recent sale as often happens in our environment has yielded huge bonuses – but not for those on the shop floor who produce the product for minimum wage reward – no that reward goes to the top executives – and certain salesmen. I’d like to tell you that these people earned this reward through their superior intellect and capabilities but I cannot – I do not know how they got their positions but most of the time they are remarkable from their incompetence and incapability relative to their position. This is the true market position we have – people are appointed to their positions based on who they know, they charge a product out at more than double what it costs to produce, they pay their productive staff minimum wage, they award themselves all “the pie” and rely on their underlings to deliver what they cannot do. There is no entrepreneurial spirit on show. There is only one strategy – cut things to the bone – cut productive staff pay – pay massive reward for this one strategy – move production to the lowest cost country – pay minimum tax. This belief in the markets is misplaced – it will not lead to a society I want to live in – we have taken the wrong road and we need to really question all the assumptions and indoctrination we have on this ideology.
But that is market abuse then
One of the biggest rigged markets in the UK is whole shabby business of leasehold, something utterly RIFE with conflicts of interest and corruption. See http://www.leaseholdknowledge.com for some background.