The concept of market failure divides the two kinds of capitalists, the extremist capitalists (free market fanatics) and the moderate capitalists (or as they like to call themselves, the “progressives”). “Progressives” (a code-word for moderate capitalists) vaguely understand that the free market is suspicious, although they couldn’t tell you why beyond “because there are poor people and somebody’s responsible.” They believe that markets usually work but that they can experience periods of failure which are caused by monopolies or some other lack of competition, the free rider problem, externalities, lax “property rights,” and so on. Extremists, on the other hand, don’t believe in market failure; they do believe that lax “property rights” are bad for business, but that such a cause is not part of the market proper.
I should probably specify that I am using the term “markets” in the same way capitalists do, as an economic system where supply and prices are mostly fixed by giant corporations.
Why don’t they believe that there can be such a thing as market failure? Extremists believe that markets always “work,” and they determine that they “work” based on a view of trade in a vacuum. They posit a situation where a person X buys something from a person Y, person X having decided that ey would benefit from buying the object at that price, and person Y having decided that ey would benefit from selling the object at that price. The conclusion is that any trade is necessarily to the advantage of both parties, since value-judgment is subjective and they both subjectively believe they have gained from the exchange.
Obviously there is a great deal wrong with this picture. For one thing, value-judgment is not subjective and therefore one cannot conclude that a person’s opinion of their interests necessarily proves that they are acting in their own interests, since people can be mistaken about what’s in their interests. There is no clear reason to believe why our beliefs about our own interests must be infallible, which is the logical consequence of believing that value-judgments are subjective.
But by far the most important, you could say all-encompassing, problem with this scenario is that it posits that trade exists in a contextless vacuum. In reality, person X and person Y operate under pre-existing conditions which force them to a certain extent to act in certain ways. In reality, price is not determined by dialogue between two people, but usually by organizations of disproportionate power compared to any individual. In reality, a person’s value-judgments are distorted by the pressures operating on one’s life.
Let’s take one random, innocuous example, like a person deciding what kind of vegetables to buy at the grocery store. The price was not set by a dialogue, but by a group of people setting price points in accordance with policies enacted by their superiors. The “choice” of the customer is not based on some abstract comparison of preferences between that amount of money and the product, but is mediated by one’s economic status. It is also dependent on what stores are available to the consumer (if ey lives in a food desert, for example), on how much cooking one has the time to do, on dietary or ethical restrictions. Finally, the whole system is contingent upon the nature of the food supply, what the stores put on their shelves, marketing and consumerism, the exploitation of the workers involved in the food supply, the application of mass murder (e.g. the Chiquita Death Squads, the massacres involved in extracting the fuel that is used to transport the produce), and so on.
Taken to its logical extent, the context of any given trade is the totality of everyone’s work and of all relations between people, at the individual and the geo-political level. If you want to be poetic, you could say that any exchange embodies the entire world.
Let’s move on to a logical consequence of exploiting food for profit, which is starvation. According to the capitalist narratives, people deserve to starve because they don’t contribute enough value to the market through their labor. Of course this is completely false from an ethical standpoint: no one deserves to starve; but it is also false from a factual standpoint. In general, we observe that the return people get on their labor is not dependent on the value they contribute, but rather on education. People who work hard, who extract the resources upon which we all depend, make less. People involved in less demanding work requiring a high level of education, which can only be attained through privileged families or crumbs given by the privileged, make more.
I have argued so far that the narrative presented by capitalists to justify the contradiction of market failure is invalid, but I still don’t subscribe to the concept of market failure. To understand why, you simply have to examine what this term “market failure” implies. The word “failure” implies that there is such a thing as a “successful market” or “well-functioning market.” The extremist position is that markets are always well-functioning, the moderate position is that markets are well-functioning most of the time, and my position is that markets are never well-functioning.
The very nature of a market can be expressed succinctly as “profits before people.” The primary drive for economic activity is to generate as much surplus value as possible, and that our economic units are set up and structured with this goal as sole standard. And because in a capitalist society money is power and money is status, workers likewise value money over other people. As a consequence, modern capitalist markets are inherently, and virulently, anti-egalitarian to the point of slavery, mass murder and torture.
I have seen the objection that, while profit is important, it’s not the only objective one can have in a market. I don’t dispute that, but extensive practical experience around the world teaches us that any economic unit set up along socialist lines will rapidly drown or forever teeter on the brink of drowning. Acting ethically costs extra money, and extra costs cut into surplus value, which affects the viability of any business. The only way to flourish is to compromise. This is not, I think, particular to capitalism: I expect that trying to go counter to the values of a local economic system, whatever it is, would be very difficult; I imagine a giant capitalist corporation would fare very poorly in a society where economic equality is mandated and enforced.
Note that I am not making any argument about efficiency here, or trying to argue that capitalism represents efficiency and that socialism represents fairness (although I do think the latter is true). Competition as a driving principle is extremely wasteful, and capitalism is no exception to this rule:
Many goods and services once made in the US and western Europe for those markets are now produced elsewhere and transported back to them. That wastes resources spent on the costly relocation and consequent return transportation. The pollution (of air, sea and soil) associated with vast transportation networks – and the eventual cleaning up of that pollution – only enlarges that waste.
The factories, offices and stores abandoned by departing capitalist corporations increase the waste of resources and of workers’ lives. In the surrounding communities, tax bases eroded by capitalists’ departures mean reduced social services, public spaces, and qualities of life for all but the richest. Those vast wastes of resources and damages to lives offset whatever small efficiency gains corporate relocations only sometimes achieve…
Efficiency did not and does not deliver what its supporters claim. That is because efficiency was not and is not what drives capitalists’ decisions. The structure of a capitalist economy – exclusive power in the hands of major shareholders and boards of directors, competitions, tensions, and unequal resources among enterprises, shareholders, directors, managers, and workers – drives the decisions made by shareholders and directors. Those decisions primarily advance capitalists’ interests in greater profits, growth and market shares.
Within the totalizing worldview of the free market extremists, the free market is the ultimate solution to everything. These just so stories usually rely on a misunderstanding of the Tragedy of the Commons mixed in with starry-eyed fantasies about the intentions of business owners (i.e. that they pursue some other objective than profit). So we get told, despite all the contrary evidence of history, that the market can magically solve the problem of bigotry because there’ll always be some corporation ready to snag workers who are discriminated against and to offer them better working conditions, since corporations compete against each other for workers. The market can also solve environmental issues because corporations have an interest in maintaining natural resources, unlike non-market societies, where people just try to get as much money out of the resource before it’s depleted by everyone else (which actually sounds more like the way capitalism deals with natural resources than anything else that has ever existed in history).
From the extremist perspective, we have never had a free market because of State intervention, and this is a regrettable fact. From the moderate perspective, we have a free market but that freedom must be balanced with the needs of the State. Both positions are predicated on the error of believing that the market and the State have contrary aims. But the State is the handmaiden of the power elite, which is mostly composed of market leaders and policy leaders; their aims are not, on the whole, contrary. Political conflicts are almost alwasy between ultra-conservative and moderate conservative factions of the power elite (for more on this, see Who Rules America? by G. William Domhoff).
A free market, in the sense of a market being completely unregulated, has never existed and will never exist, since it would collapse into itself in short order. All modern large-scale markets crucially depend upon the infrastructure, the subsidies, the laws (including “property rights”) and the indoctrination provided by the State. This applies as much to the most abstract financial transactions as to two individuals exchanging an object for money, but obviously to the former to a much, much greater extent.