Think Out Loud

"We do not learn from experience, we learn from reflecting on experience." -John Dewey

Markets as Institutions and Market Reform as a Constructive Process

Steven K. Vogel, writing in 2007, challenges the neoliberal concept of “free markets” and the idea that these markets become more competitive through a deconstructive process of deregulation.  First, the idea of “free markets” harkens back to a Smithian notion of trade networks springing naturally from innate human instincts and utterly unhindered by governance.  At least since Polanyi’s game-changing work The Great Transformation, it is more popular to see markets arising from rules, norms, and varying levels of formal governing structures (depending on the time period and the place).  Polanyi even goes so far as to say that the government is the mother of the market, and especially the Smithian notion of a “self-regulating” market (which arguably has no basis in the historical record).

If the market is not truly free, i.e. if it is perpetually constrained by law, rules, and norms, then it is a social institution and subject to the same governing dynamics as other social institutions.  On one hand, this means that social institutions must be guided toward certain behaviors that are not directly in their best interest.  Consider competition:

Competition is considered good for an economy in that it enables reasonable pricing (good for consumers) and industry innovation (good for consumers, businesses, and society in general).  However, companies tend to compete for the biggest market share, which means their ideal situation is full dominance of a market: that is, monopoly with no competition.  In countries like the US, anti-trust laws come into play here to prevent over-consolidation of market share into the hands of a single company.

Neoliberals argue that markets with minimal regulation will naturally support a competition-filled economy, but the incentives described above argue against this logic.  Furthermore, different nations might have wildly differing capacities to encourage competition in certain sectors (for instance, a developing country might have very few human resources for skilled work, so this work will likely be concentrated in a single enterprise).  Vogel’s point is that constructive processes of market reform may be a better stimulant to heightened competition than mere deregulation.

What might these constructive processes look like, and how does this relate to social policy?  For example, in our scenario involving the developing country, the state could sponsor education or vocational training programs to enhance the skilled human resource capacity of the nation and thereby increasing the likelihood that these skills will be distributed among a wider array of competing enterprises.

One comment on “Markets as Institutions and Market Reform as a Constructive Process

  1. Daniel Herrera
    May 21, 2012

    Agree, there is no such thing as a free market, the pure definition of a market is a political one it is a social device created by social means to fulfill a social function.

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