The marriage between free market thinking and the right has ended in divorce, on the grounds of adultery by the latter with a mercantilist buffoon. It was only ever a marriage of convenience; the right liked markets when they forced wages down, but aren't so keen when tight labour markets force them up. They were always fonder of wage "flexibility" than rent flexibility.
This clears the path for a more intelligent approach to thinking about the use and misuse of markets.
Textbooks tell us that the virtue of competitive markets is that they achieve allocate resources efficiently. If a company is making big profits others will move into its market, bidding prices down and so giving customers a better deal. Conversely, if companies are losing money they'll exit the market, and their capital and labour will be hired by companies who can use them better.
Sadly, however, this isn't as true as we'd like it to be. Abhijit Banerjee and Esther Duflo show in Good Economics for Hard Times that resources are slower to move than market fundamentalists believe. In the 1980s the latter wanted to close coal mines because they thought unemployed miners would find jobs producing goods and services in higher demand. But this didn't happen to the extent they expected; miners stayed on the dole and pit villages turned into ghettoes. This doesn't mean economies must be preserved in aspic. But it does mean that markets need state intervention to work well - for example by maintaining full employment so that jobs are easier to find, and by offering genuine help with finding jobs, retraining and relocation.
Allocative efficiency, however, is by no means the only case for free competitive markets.
Another case lies in the experience of J.K. Rowling. She, like Agatha Christie, C.S.Lewis and many others, had her work rejected by numerous publishers until it was finally taken up. Similarly, George Lucas's initial proposal for Star Wars was rejected by both Universal Studios and United Artists. And record companies turned down the chance to sign Elvis and the Beatles. All of which vindicates William Goldman: nobody knows anything. Had there been only one or two publishers, film studios or record companies, we'd probably not have heard of these. But in a healthy market economy there are many, and so readers, viewers and listeners get what they want. Markets, as Hayek noted, help to overcome the fact that any individual has only very limited knowledge.
One of their great benefits is that they give us product variety. The USSR put a man into space but struggled to give people nice shoes. That's the merit and demerit of central planning.
Competitive markets do something else. They increase productivity (pdf) not just by forcing incumbents to up their game but also by driving inefficient firms out and having more efficient ones enter. Jonathan Haskell and colleagues have found that around half (pdf) of manufacturing productivity growth comes from the latter. As the CMA put it (pdf) in 2015:
There is a strong body of empirical evidence showing that competition can drive greater productivity. Within-country studies demonstrate a positive relationship between strength of competition and productivity growth across sectors. Similarly, cross-country studies suggest that countries with lower levels of product market regulation, enabling stronger competition, tend to have higher levels of productivity growth.
Markets, however, also have their downsides, and not just in the textbook cases of them sometimes leading to monopoly and often producing negative externalities such as environmental degradation and not enough positive externalities such as research and development.
Many of these downsides are in financial markets. Markets are selection devices, and sometimes they select wrongly, in part because of an inability to distinguish luck from skill. As Armen Alchian wrote in 1950 (pdf):
The greater the uncertainties of the world, the greater is the possibility that profits would go to venturesome and lucky rather than to logical, careful, fact-gathering individuals.
In this spirit Bjorn-Christopher Witte has shown that fund managers who take risks and get lucky win market share at the expense of more skillful but cautious ones. That's consistent with a finding by Nick Motson and Andrew Clare, that retail investors buy into good performing funds, only to see them subsequently under-perform. And Pascal Seppecher and colleagues at the University of Paris show that markets select in favour of highly-geared companies in good times but in favour of cautious ones in bad times, with the result that booms and slumps are more violent than they otherwise would be.
Markets also have costs because, as Ronald Coase pointed out (pdf), it is sometimes difficult to write contracts or to check whether they have been fulfilled. This true of private pensions, and workplace pensions. We can't know in advance what returns a provider will offer, and their management charges compound horribly over time. It's cheaper and less risky for the state to provide pensions than the market.
Yet another example is government subcontracting. Sam Freedman's Failed State is especially brilliant on this. He shows how contracting out probation services led to subcontractors not caring about re-offending, and how privatized childrens' homes move children miles away from friends and family, making them vulnerable to grooming gangs and other criminals. He says:
Much government business with private providers no longer conforms to anything resembling a functional market with properly aligned incentives. (Failed State, p96).
This problem is exacerbated by another: motivation crowding out. Who is likely to be the better probation officer: the one drawn to the profession by a desire to rehabilitate offenders; or one who will earn a little more for hitting a contractual target? Who is likely to better look after vulnerable children: someone attracted to work in childrens' homes by a love of children; or one working for a profit-maximizing private equity firm? If the cash nexus comes to dominate, other motives such as professional pride recede not just because people change but because those with strong professional ethics simply leave the job.
Which brings us to a problem. Markets are not merely a value-free technology, to be used or not depending upon the precise job in hand. They also have an ethical dimension. In Spheres of Justice Michael Walzer argues that there are some things which money should not be able to buy, because to do so would violate the very meaning of them: criminal justice; divine grace; political rights such as to vote and free speech; and so on. The Beatles were right: "money can't buy me love", even if it can get you some of its correlates. In this spirit, the buying of political influence via lobbyists and party donors is simply wrong; it denies what democracy is. Allocative efficiency is not the only value.
Another argument for limiting markets comes from those with environmental or aesthetic motives, or those wanting to restrict the domain in which capitalism operates. Patrick Grant urges us to buy less disposable clothing from companies like Shein and fewer but better items. Jason Hickel proposes measures to reduce advertising and planned obsolescence. And in everyday activities such as allotments, repair cafes or early retirement people are reducing the realm of market activity. Colin Leys, echoing Marx, has shown how capitalism tries to expand markets in order to raise profits - but there is a backlash to this.
Saying all this raises a problem. The government's attitude to markets seems at odds with what I've said. Genuinely useful pro-market policies would impose fierce competition, not just through strong anti-monopoly measures but through looser intellectual property protections and ensuring start-up companies have access to credit. If anything, however, the government is doing the opposite to this. Its demand that the CMA take "pro-business decisions" betokens a bias to incumbent companies. And in her recent speech on "kickstarting" growth Reeves praised businesses without noting that market forces cause growth through creative destruction, which is (or should be) a threat to such businesses.
On the other hand, though, the government seems keen on markets where it shouldn't be. It's showing little enthusiasm for ending the subcontracting of public services, or for stopping the sale of political influence. It is permitting a sham market in water, which is merely a front for theft. It is sympathetic to financial deregulation and cryptocurrencies, whilst doing nothing to promote useful financial innovations such as in GDP-linked securities. And in permitting lobbyists and rich donors to buy political influence it is enabling a market which undermines the value and meaning of democracy.
What's more, it is doing nothing to promote decommodification. It has dropped the Corbynite interest in universal basic services (pdf), for example, and its desire to expand Heathrow and cajole the unwell into work is a sign of a desire to simply expand economic activity at all costs. This, however, is one of the drawbacks of social democracy: the need for tax revenue and to retain the cooperation of capitalists conflicts with the need to reverse commodification, be it on grounds of environmentalism, efficiency or ethics.
John Stuart Mill famously said that liberty is often granted when it should be withheld and withheld when it should be granted. The same is true of market activity. We no longer need trouble ourselves with sloppy thinking about markets on the right, but we need to confront it in the government.