Time to slay the market monster

Posted on August 10, 2011


Global financial markets, along with the other manipulated casino operations such as Stock Exchanges, are in crisis;  a completely predictable crisis to anyone not sold on the illusion that these markets were anything more than sophisticated gambling dens.  But they are gambling dens driven by greed and destructive of the plentiful resources created by and stolen from the  working mass of humanity.

This is no moral condemnation:  and those who manage and manipulate the markets are merely responding to the demands of a system based on competition, with the need to accumulate greater financial resources (profits) in order to be able to invest so as to accumulate still more.

This applies to what is usually referred to as the “real” economy, that which makes, grows and produces mainly needed, but useful or useable resources.  An outgrowth of this is the financial sector, which has turned notes of exchange (otherwise known as money) into a commodity capable of being manipulated and gambled with.

In the desperate drive to accumulate more and faster, these markets, which once dealtwith the transfer and sale of real goods and services, became devices through which virtual goods and services were traded.   Futures — gambling on the prices and potential outputs months or years ahead  —  rapidly developed into put and call options based on guesses as to future prices and mutated into derivatives which simply means gambling on the guesses and gambles of others.

The world has obviously long outgrown the small, village-based enterprises that existed when the economist Adam Smith wrote his seminal The Wealth of Nations in which he postulated the existence of an “invisible hand” that would moderate supply and demand, prices and profits, to the benefit of all.  Only the “invisible hand” came to be — and still is —  claimed to be “the markets”.  That these are far from invisible and essentially anarchic is simply ignored.

Today we live in a world of large, transnational corporations that still claim to function by the principles outlined in the 18th Century by Smith and by the likes of David Ricardo and a host of others who followed them.  This, simply put, is that businesses compete to supply the demands of the marketplace and that they succeed only by providing the right product at the right price while still remaining profitable.

Also generally forgotten or ignored is the fact that the original capitalist giant, Britain, banned shareholder companies for many years because of manipulation and theft.  And that was before the advent of limited liability, which allows managers of the capital of others to feather their own nests without being responsible for any losses incurred by the enterprises they manage.

Increasingly all of this great edifice is maintained by ever increasing credit, by virtual money, based on virtual returns based on virtual reality.

When the crunch comes, as inevitably it must, those banks and financial institutions, caught with a huge supply of virtual resources and needing to supply the real thing, fail.  But in this game of financial Russian roulette,  it is not the gamblers who end up paying, it is taxpayers.  And taxpayers are, for the most part, the very workers whose wealth has already been ripped off.  It is their taxes that go to bail out and prop up  institutions that are an integral part of a grossly unfair system.

Given what is now happening, we should all be extremely wary of being sold yet further illusions about what can and cannot be done within a system that is clearly the source of the problem.  Yet we are having illusions peddled at a rapid rate.  A bit of regulation here, a bit of tinkering there (along with huge financial bail outs where necessary) and all will be well.

Then, of course, there is always the touting of “alternatives” within the system.  The most vociferous at the moment being nationalisation.  This, no matter how defined, merely amounts to a change of ownership that might give more opportunity for the politically well-connected to dip their fingers into a greater number of tills.

A more liberal and apparently egalitarian alternative is social entrepreneurship.  This links into ideas about co-operatives and better access to low interest bank loans for micro businesses.

The best definition of this supposed alternative is probably that by micro-finance proponent, journalist and author, David Bornstein:  “What business entrepreneurs are to the economy, social entrepreneurs are to social change. They are the driven, creative individuals who question the status quo, exploit new opportunities, refuse to give up, and remake the world for the better.”

No prizes for those who spot the irresolvable contradiction in this statement.  But Bornstein — and others promoting these “alternatives” — does provide examples of the “non-profits” succeeding in changing government policy or mindsets.  But the question remains:  where have they changed anything fundamentally?  Have not these far from new ideas, wherever they have been applied to any challenging degree, merely been assimilated into a system that contradicts the whole idea of non-profits and collectivism?

It is a system that relies on brutal and cut-throat competition that is also bolstered by a legal framework.  The directors of companies and corporations are obliged to ensure maximum returns for their shareholders — and beggar the rest.   This “fiduciary duty” of company directors was clearly outlined in a landmark 1919 decision handed down by the Michigan State supreme court in the case of Dodge vs Ford and is widely accepted globally.

Much more recently, the late Milton Friedman noted that any company director who prioritised social responsibility was working against the interest of his or her company and should be sacked.  He was correct, and not only in legal terms.  In the current intensely competitive environment any director who does not prioritise the bottom line threatens the survival of his or her enterprise.

If social responsibility is the priority of the social entrepreneur it is in stark contrast to this.  But if “social entrepreneurs” not only question the status quo, but directly challenge it, they come face to face with the need to challenge the system of free enterprise and capitalism.

This is completely different to the carefully budgeted social responsibility programmes indulged in by many corporates.  These are, fundamentally, window dressing and should correctly be accounted for under the headings of marketing and advertising.  The cost of such programmes should never outweigh the (often only estimated) financial benefits that accrue from them.

Social entrepreneurs, on the other hand, are supposed to prioritise greater wellbeing for the majority;  they bewail the move of productive enterprises to regions of lower labour cost such as Indonesia, China, Bangladesh or Vietnam.  Yet these moves are usually made because the competitive rules of the system make them necessary.

But at the core of social entrepreneurship are what are claimed as alternative business models.  Historically, this has led to the promotion of various forms of co-operative enterprise almost all of which have failed or been incorporated into the existing economic system.  The best examples being the kibbutzim of Israel and the co-operative movement in Britain.

The British “co-ops” — ranging from supermarkets to a bank — have their roots in the work of Robert Owen, who started his paternalistic reforms at the New Lanark textile mill in Scotland and who established the New Harmony community in Indiana, USA, in 1825.  The New Lanark model failed to spread and New Harmony collapsed.

Owen’s enterprise in Scotland could only survive in the absence of cut-throat competition, at a time when demand far outstripped supply.  His business plan included shorter working hours and better wages and conditions for “his” workers along with the provision of schools for their children.   In other words, his input costs increased because of the exercise of “social responsibility”.  In a modern context, this is a classic example of the adage that good bosses will go bust.

Today we are seeing many bad bosses go bust as well, all at the expense of the majority of the population.  It should be a wake-up call.  We should now stop chasing after illusions and confront the reality that the market system which governs the global economy is not bankrupt, it is badly diseased and dangerous.  How this monster should be slain, how to dispose of the corpse and how to build a real alternative should perhaps be where debate should now be focussed.