07 December 2017

Free market? Don't believe it

There's a lot of lip service paid to the notion of the free market, as if competition, at least over the long run, will lead to economic efficiency. There are many problems with this. The biggest, in my view, is that we now have political systems that not only entrench wealth and income inequalities, they extend them. This seems to be an almost worldwide phenomenon. Our governments and big business now act as a coalition, very often acting against the interests of ordinary people and small businesses. Inequality on a staggering scale is both the result of policies favouring the rich, and the stimulus to more of them.
Take this excerpt from a review of The Captured Economy: How the Powerful Enrich Themselves, Slow Down Growth, and Increase Inequality, by Brink Lindsey and Steven Teles, discussing the US economy:
Of the firms that enjoyed returns on invested capital of 25% or more in 2003, 85% were still earning returns that high a decade later. The authors put forward four case studies to illustrate the choking spread of rent-seeking behaviour. Implicit and explicit government subsidies to the financial industry enrich bankers and sow the seeds of crisis, for example, but have done little to boost growth. Increasingly strong intellectual-property protections have not unleashed a torrent of new ideas, but have instead swelled the earnings of top firms, which wield their patents and copyrights menacingly at would-be innovators. The cost to negotiate reams of licence agreements, and the risk of lawsuits, can stymie the most determined of entrepreneurs. Analyses of occupational licensing and land-use rules turn up similarly skewed policies: they benefit those already on top at the expense of society as a whole. How America’s economy is rigged by special interests, the 'Economist', 2 December
Having been involved in agriculture, I have seen how corrupt, insane policies can persist for decades. More important than their benefiting bureaucrats and fraudsters, is that they enrich people and corporations sufficiently to finance opposition to their being withdrawn. No trick is too low. I think much of the reason for the persistence of profligate policies like agricultural subsidy programmes, and those competition-stifling regulatory barriers described above, is that our policymaking process is too protracted and complex for ordinary people to follow unless, of course, they are paid to do so.

One of the benefits of Social Policy Bonds is that they would define explicit, transparent policy goals that are meaningful to ordinary people. This would make the policymaking process itself more accessible. And when people understand what a policy is all about, we can participate more in its development, refinement, and implementation. We should also better understand the limitations and trade-offs that are intrinsic to public policymaking when resources are limited – as they always are. A hugely important benefit arising from this will be buy-in: having been consulted when our social goals are being formulated, we are more likely to participate in achieving them. The widening gap between politicians and the citizens they are supposed to represent would begin to close. Bondholders and their paid agents would experiment with different approaches to solving our social and environmental problems and, no doubt, they will try some that are useless or worse. But - unlike in today's policymaking world, with its entrenched interests - they will have every incentive to terminate their failures. We'd still need regulation and licensing, but they would be means to ends that are wanted by ordinary people, not corporations and other powerful interests.

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