Are Market Economies Incompatible with Prosperity, Equality, and Broad-Based Decision-Making in the Long Run?
For me, it's a definite no, although I am curious to explore the arguments in favor of a yes. In the final chapter, Van Bavel summarizes his findings, and the title speaks volumes: “Why Market Economies Are Fundamentally Incompatible with Prosperity, Equality, and Broad-Based Decision-Making in the Long Run.” To support this conclusion, he outlines the cycle he has identified in general terms, divided into four phases (also summarized in a chart on pp. 384–85): In response to social uprisings against feudal conditions, a (more) open society emerges, with increasing freedom and self-organization among ordinary people (e.g., guilds, common lands). This implies a new social balance, with a broad distribution of property and political influence. It leads to open institutions that enable the growth of markets—first in goods and services, but also in land and labor—positively affecting living standards. Markets become the dominant mechanism for allocating land, labor, and capital, pushing aside systems of self-organization, often through state power. Values such as mutual trust, cooperation, and equality are displaced by market values. Prosperity continues to grow. Financial markets expand, and both citizens and states become increasingly dependent on market elites. Through the market, disparities in wealth translate into growing economic inequality, which in turn becomes political inequality. Market elites are able to influence policy-making and regulation in their own favor. Living standards stagnate. For market elites, it becomes more profitable to invest in financial operations (e.g., government debt) than in the real economy. Both wealth inequality and GDP peak, but living standards begin to decline, and access to political organizations and civil rights diminishes. There may be uprisings, but they are easily suppressed by mercenary armies. Eventually, markets stagnate, followed by relative or even absolute decline. According to Van Bavel’s analysis, the United States is currently in the final phase of this cycle. The cycle in Northwestern Europe began later, with a mixed economy that left considerable room for both government and civil society. However, neoliberal policies aligned Europe with the American cycle, accelerating it and putting it on a path toward the same decline. Van Bavel sees (too) little societal resistance to this trend so far. These descriptions may not sound entirely unfamiliar. Let’s highlight a few further aspects. First, the causality between increasing freedom and markets is the reverse of what is commonly asserted. The rise in individual freedom and opportunities for self-organization, coupled with a relatively high standard of living, actually preceded the development of factor markets: Freedom is not a result of markets, but rather an essential precondition for their emergence. Once markets become dominant, freedom is consumed and hollowed out by economic unfreedom. Factor markets, in this sense, parasitize freedom, rather than ushering it in or encouraging it. (p. 377) As more surplus is accumulated and the rise of financial markets becomes inevitable, the nature and effects of markets change: They became an end in themselves—that is, the simplest and safest way to make accumulated capital yield returns. As a result, financial markets began to dominate and suffocate the real economy. (p. 379) Furthermore, centralizing governments also seek greater control over society and find natural allies in market elites: Factor markets and their market elites, and states and their state elites, worked in close cooperation to destroy the self-organizing structures of ordinary people. The states needed strong markets to strengthen themselves […] and the market elites needed strong states to protect their property rights. .to protect their property rights, since growing inequality increased the need to keep the losers in check. (p. 403) A paradoxical effect, however, is that the reliance on financial markets leads to rising public debt, causing governments themselves to fall under the (political) control of market elites. To repay these debts, governments do not resort to taxes on wealth, but instead impose taxes on labor and consumption. "[T]hen the tax system effectively functioned as a transfer of money from the poor to the rich." (translated from a review by Jef Peeters, in Oikos, #105)
