Dave Gardner

Markets as social institutions constrained both by custom and law.

Markets have always been a tricky subject for socialists. Capitalists favour a market in labour where, in theory for a wage in return for labour power, capitalists and workers meet as equals to negotiate mutually advantageous arrangements. Any attempts at conscious co-ordination, either by groups of employers or groups of workers will disrupt the working of the labour market. Such was the idea of Adam Smith in ‘The Wealth of Nations’. Socialists, at least since Marx, have denounced this view as a self-serving fantasy on the part of capitalists. There are usually more workers than there are jobs. Workers have to compete for a limited number of jobs and capitalists can use this competition to their advantage to lower wages, extract surplus value and make profits. In addition it is far easier for them to collude in secret despite legislation against doing so. The key point here is that the labour market works to the advantage of capitalists because they have the power, ultimately, to starve workers who refuse to accept their terms of employment. (This was the situation before the Welfare State, and the situation today for some migrant workers).  The impartiality of the unregulated labour market is a sham.

Labour markets can, however be tilted in the favour of workers through social security and social health arrangements that give them resilience and through occupational labour markets that make a worker’s labour a portable form of property embodied in national recognised qualifications and collectively bargained wage rate.   But to achieve that requires collective action by workers to oblige the state, against opposition from capitalists, to put appropriate measures such as legislation and financial arrangements in place. Without the successful prosecution of class struggle, labour markets will always tend to be skewed in favour of owners of capital. 

Markets as promoters of competition.

The most intuitive model of a market is a collection of stalls in a market square where goods and prices are on clear display to sellers who can choose on the basis of the best mix of price and quality. Those sellers who succeed best in providing good quality at the lowest price will succeed in clearing their goods and making a profit. Even here there are possible imbalances in favour of sellers. It often requires specialist knowledge and knowledge of the history of what is being supplied in order to make a good purchase. If you know something about horses it certainly pays looking a horse in the mouth before buying it. Otherwise you may end up being defrauded. That said, markets can be an efficient way of distributing resources if properly regulated.

Sometimes what is available to the public is not what they need or want. They may not even be aware that they want something before it becomes available. It often rapidly becomes a need. Think of the way in which mobile phones have come to dominate our lives. If an innovation is introduced into a market and is successful, then competitors will emerge and try to do something better than the original. This drive for innovation is often said to be what allows for technological development and keeps innovation at the forefront of market relationships at prices that customers can afford. This feature of markets sometimes worries socialists who are concerned that wants and needs are created that can be harmful to human well-being, particularly if they are addictive and have the potential to harm other people. Once again, unregulated markets can cause great harm if left unchecked.

Socialist countries have had an uneasy relationship with economic markets. Lenin used them to stimulate production in the 1920s Soviet Union and they were then suppressed. Small scale capitalist businesses were not allowed to exist or in some cases they had a limited role to play in an overall socialist economy. The People’s Republic of China, on the other hand, has allowed markets to exist in order to reap the advantages of productivity and innovation that they can provide, but controls land and the commanding heights of the economy and suppresses oligopolies and monopolies. Markets work but they are highly regulated and supervised by the State. 

Monopolies, Oligopolies and the role of the State in regulating Market and Property.

When markets are not regulated successful capitalists can achieve a dominant position and use their resources and market power to squeeze out competitors. They can bleed them dry by pricing their own goods below the cost of production, they can use advertising and/or spread false information or they can use coercion. A single supplier, unfettered by competition, can set prices way beyond cost of production without having to worry too much about the quality of the product. A small number of suppliers (oligopolists) can collude to set levels of price and quality amongst themselves to their own exclusive advantage. Such things can happen if monopolies and oligopolies are allowed to form.

The wealth that such concerns generate can also allow them to employ lawyers and lobbyists to work on their behalf. ‘Think Tanks’ and newspapers can create a climate of opinion that benefits monopolists and oligopolists and influences legislators to organise regulations in their favour. An example given by Sahra Wagenknecht concerns the altering of patent legislation to prevent competitors from ever entering the market. The use of monopoly or oligopoly power can ensure that competition is permanently stifled unless control of the state is wrested away from the grip of monopoly capital and its allies.

Does this mean that socialists should oppose use of the market in all its aspects? Not necessarily. In order to secure the public good and the interests of working people, the state does not need to micromanage every aspect of economic activity. Individuals and families should be free to run their own businesses and various forms of collective ownership, including but not confined to shareholding, can benefit society by providing for a diversity of needs, keeping down prices and encouraging innovation. The state should be seen as a kind of ringmaster for markets, ensuring access to those who want it and devising and enforcing rules that ensure fair trading and restrict the emergence of monopolies and oligopolies. 

There are four further roles for the state relating to markets under socialism. First, important sectors of the economy should be under some form of collective ownership to ensure the public interest. At the very minimum these include control of a central bank and money creating abilities, utilities such as water, gas, electricity, transport and probably some aspects of telecommunications. These should also include industries of strategic importance such as other forms of energy and mineral extraction, and those essential to health, national security and long-term economic development. In general, key aspects of national infrastructure important to national development should come within the control, if not always the direct ownership of the state. In some cases this need not be a public monopoly, but the state can be a significant player in the market, for example to promote innovation through long-term investment. It is also an important part of the business of the state to ensure that everyone has adequate housing and to this end it should be involved in house building and renovation, either directly or more probably through the agency of local authorities. 

Second, the state should promote different forms of collective property and control of assets in the economic sphere. Employee representation on boards should be a prerequisite for all but the smallest private enterprises including public enterprises owned by the state, for example the Bank of England. In the case of the BoE trade union representation covering the range of national economic activity should as far as possible be represented in the Court of that institution. Employee control of pensions schemes, both public and private is needed to ensure that funds are invested safely and pension guarantees are not undermined. Very often this can be combined with collective ownership such as non-transferable rights in the business.  Market relationships do not exclude giving the working class a decisive say in how the businesses on which they depend should be run and class relationships do not have to be stacked against them.

Third, the state should be in a position to promote economic development and innovation by setting investment priorities, funding research and where necessary setting up businesses to promote strategic objectives. To those who say that the state cannot pick winners, I would ask you to look at the success of the People’s Republic of China in setting, pursuing and investing in national economic priorities. 

Fourth, the state needs to ensure that the public interest is served in international trade. Unrestricted free trade is to be avoided, in particular an unrestricted international labour market. Countries should ensure that their own human resources are properly cared for, developed and employed before opting for the easy solution of cheap overseas labour, often working in invidious conditions. Where a state considers it to be in the national interest to promote certain types of economic activity which might be stifled through excessive international competition tariffs should be used as much and for as long as necessary to prevent this from happening.

Conclusion.

‘A good servant but a bad master’ should be the watchword for socialists when considering the role of markets in society. Market relationships can benefit society by promoting choice, innovation and growth. When market players become monopolists or oligopolists they gain dominance over both buyers and sellers in markets, distort competition and stifle innovation. In a word they become rent seekers rather than entrepreneurs. As they grow in wealth they grow in power and seek the ‘soft capture’ of the state through lobbying and media control. The state and the working-class movement must always be vigilant to ensure that markets work in the public interest through oversight and regulation and should ensure that access to the media and other means of communication are accessible and out of the hands of monopolists and oligopolists. That means that parties and trade unions that work in the interests of working people maintain dominance within the state, and not just in the legislature.