Note: this was posted in 1997 to an early internet experiment.
For more, please see my page The Hyperforum on Sustainability.
“It is time for someone to step forward and point out that the two views that Bruce describes are not mutually exclusive.” The two extreme positions are obviously impossible. Anyone who thinks that markets are free might do well, on the next occasion when Hertz car rental asks $13 per day for collision damage waiver, to ask himself whether Hertz’s competitors offer a better deal. (The car rental firms are well aware of the fact that if they all do it they all get richer, in the aggregate and individually, than they would if they undercut eachother. The ability of a lean and hungry new player to capture market share by offering the customer a less outrageous arrangement is limited by other factors. No explicit collusion is required. This situation has persisted stably for a few decades.) On the other hand, the economic history of the Soviet Union illustrates the value of centralized, top-down regulation.
The point is that markets have many mechanisms, at least temporary ones, of a number of different kinds.
- Some mechanisms are technological: the availability of relatively cheap air freight, for example. This makes it cheaper to grow plants in South America and fly them in than it is to grow them in the US. When you buy your tomato plants in a few months, ask the nursery if they grew the plants themselves. The US nursery market was transformed by this change.Deserving a category of its own is information technology. Many participants have discussed this. More recently, Rob and I have been trying to get more specific about how it works.
- Some mechanisms are financial: the availability of specific forms of credit, for example. Banks are willing to loan seed money to farmers, secured by their farms, and to loan new car dealers the wholesale cost of the cars on their lots. Both of these facts have a decisive effect in defining the structure of the respective businesses.
- Some mechanisms are directly based in perceived notions of acceptable trade relationships. For example, when Walmart is willing to agree with Proctor and Gamble that P&G will manage Walmart’s Pampers inventory; or when, further, pharmaceutical wholesalers are willing to own the inventory on druggists shelves. This is new since I was a kid.
The options for regulating these mechanisms are wide, and, as David notes, it is not necessary that regulation always be governmental. The many varieties include the following.
- Improving overall mental health. David has recently me that this is the fundamental prerequisite.
- Making information available. In previous notes, I have been trying to say that if information technology is a basicmechanism, then we can improve democracies and markets by improving the quality of information exchange: not necessarily by increasing the volume of information flow, but by allowing structured forms of intersectoral communication so that people could design flexible and sophisticated social, including market, structures.
- Requiring the availability of information. The SEC works in one arena to create the market transparency, as John urged, in its efforts to make (US stock exchange listed public) companies disclose information about themselves and what they are doing, who owns what, when company officers sell stock. (This remark was contributed to me by Dave, a Hyperforum lurker, who also tells me that he thinks “the real concern in terms of transparency these days [is] with places like Russia where there is no fixed legal structure.”) Even this apparently totally passive and impartial role of the govenment decisively changes the possible market arrangements.
- Becoming a player. When the Fed changes the prime interest rate it is an active player, changing outcome as well as the structure. But also, private players, by their practice help to define what is possible.
- Telling the players what to do. For example, the FDA, or the Justice Department’s Antitrust division.
The thing that’s wrong with the straw man “Neo Adam Smith,” as probably distinguished from the actual Bo, is that, if we ignore the fact that there are real mechanisms in play that completely circumscribe any theoretical idea of market freedom, we become the hapless victim of these mechanisms. The thing that’s wrong with the straw man on the other side is that ham-fisted regulation in the name of noble goals, ignoring actual mechanisms, is unlikely to be productive, even of the noble goals.
What we need is
- to recognize the nature of real market (and governance) mechanisms, and
- to recognize our own responsibility for shaping and controlling these mechanisms
- with regard for the historical processes they are embedded in,
- with regard for the aspirations of all groups of people, and
- with regard for their sustainability.
This control should be the lightest possible, since another overarching goal is not just to ensure that diverse groups of individuals get what they need, but to ensure that diverse groups of individuals get to define their needs and their destinies for themselves: i.e. freedom.
You’re right that Bruce courts the danger of making himself “the straw man on the other side.” In particular, he seems much too quick to think that all the action is in global governance. He seems to have misunderstood Paul Raskin. Paul did not say that local answers were not enough and that we need to cut to the chase: global governance. Nor did he say the opposite, but rather something more in the spirit of your remarks: global governance and the opposite “are not mutually exclusive.”
Paul’s last paragraph sketches a very sophisticated vision, leading up to, “Such a “nested” governance structure would cohere naturally with the nested character of ecological and social systems.” Your first paragraph involves the notion that “[i]n fact, there can be all levels and types of intervention thriving in a variety of formal and informal networks.” I think we very much need to figure out the details of the vision the two of you are pointing to.
Thu, 27 Feb 1997 17:43:42 GMT
For more, please see The Hyperforum on Sustainability.