Markets & the right

Samuel Gregg reminds us of an important fact about rightist thinking – that the right has always been ambivalent about markets.

This is as true in the UK as in the US. We saw this, for example, in the 19^th century when the Tories split up over the abolition of the corn laws and when Thomas Carlyle damned economics as the “dismal science” for wanting to abolish slavery. We saw it too in Roger Scruton’s mixed feelings about Thatcher:

She leaned too readily on market economics, and ignored the deeper roots of conservatism in the theory and practice of civil society.

And we see it today in the Tories imposing trade barriers not just between the UK and EU but even within the UK. Perhaps the most spectacular example of this is John Redwood’s seamless move from ardent Thatcherite to supporter of autarky.

All this poses the question, though: why is it now that the right is moving away from free market thinking rather than twenty or thirty years ago?

The answer, I suspect, lies in part in the one thing that conservative thinking has always been consistent about – its concern to protect private sector hierarchies. As Corey Robin says:

The priority of conservative political argument has been the maintenance of private regimes of power.

And here’s the thing. Free markets sometimes help maintain these regimes but sometimes threaten them. In the 80s and 90s, markets helped to entrench capitalist power, because deindustrialization and globalization helped to weaken the power of organized labour. (This isn’t to say that the decline of unions was purely due to market forces: the coppers at Orgreave were agents of the state.) In these circumstances, the right discovers a love of markets.

At other times, though, markets disrupt hierarchies. The free trade espoused by Smith and Ricardo was bad for landlords: Smith was, in his day, a heterodox economist. 

What we’re seeing today is a reversion to those times. Markets now are a danger to the existing order, in three different senses.

First, some employers are befuddled by the unusual sight of localized labour shortages. Obviously, Econ101 says the answer to this is to raise wages – which some are loath to do. The notion that market forces might actually work to workers’ advantage rather than capitalists’ is an unfamiliar and disturbing one.

Secondly, in a free market employers can hire whom they want – which means immigration. A market society is a cosmopolitan society. Rightists who feel awkward about hearing foreign languages don’t want that*.

And thirdly British capitalism is now to a large extent a rentier economy, as Brett Christophers has shown. A genuinely free market, however, would undermine this. Freer copyright laws would curb intellectual property rents; ending banks’ implicit subsidy and encouraging competition would cut financiers’ rents (pdf); more competitive government tendering could reduce what Christophers calls contract and infrastructure rents; and shifting taxes from income to land value would end landlords’ power to expropriate for themselves the positive externality of improvements to local areas. In ways such as these, introducing more market forces would undermine actually-existing capitalism.

It’s no accident, therefore, that the right should now be falling out of love with free markets – because these are no longer a way of preserving the existing order. You cannot tell intellectual history purely through the lens of ideas. Material interests matter, and it is these that are turning the right away from markets.

If this sounds conspiratorial, it shouldn’t. Think of politics as being a little like natural selection. Policies and ideas arise if not as random mutations then at least sometimes wholly or partly independently of material interests. But the environment then selects which ones survive or thrive – and a key part of the environment is class interests. The Tories good fortune has been to find a way which reconciles voters’ longstanding hostility to free markets with both their own interests, their love of order and inequality and electoral success.

My story here is not just about the right, however. There’s a message for technocrats. They tend to see markets as a mere engineering problem: sometimes they work well and sometimes they need fixing. Maybe this would be true in an ideal society. But we don’t live in such a society. Instead, we have a class-divided one in which capitalists and rentiers have the whip hand – and that hand determines when and how markets get to work.

And there are points here for the left. The powerful sections of the right are no longer free marketeers. Pretending that they are is a tactical error, which fails to see that one of the Tories’ great strengths is its ability to change. Also, if markets can be a threat to actually-existing capitalism, perhaps many leftists should rethink their instinctive antipathy to them.

* No. Immigration does not reduce natives' wages (except very slightly for a minority).

Comments

[dafis]

It has been evident for almost ever that the last thing large corporates want is free enterprise and competitive markets. Hence their love for the EU and big government in general. They, government and big business, are content as long as their alliance produces the anti competitive regulations that safeguard their ability to do next to nothing and harvest profits which might otherwise be diluted or lost.

[Jan Wiklund]

I saw the film about immigration not causing lower wages.

There was however one thing he didn't say anything about, possibly because it doesn't fit in with neo-classic economics. And that is that it may weaken trade unions even further.

Generally, fresh immigrants are not known to enter unions in big numbers. Many of them are content to work in low-wage, non-organized businesses because what they get is at least more than they would get in their home countries. And also because there is probably not much trade unions in their home countries which makes the whole idea about unionism a rather strange one to them.

Which makes trade union power weaker in society as a whole. Which is bad for workers.

[Nanikore]

Great post. Dafis, I think many (and I repeat many) large corporations just want clear rules for the sake of stability. A lot of German companies (eg Daimler) pay decent wages and actually support the German collective bargaining system and what the Brexit right wing condemn as the EU's excessive regulation to support health, environmental and labour standards. So it is not always true to say that capital behaves that way everywhere. A lot of Japanese companies will accept what might be assumed to be costly labour and other protections if it guarantees long term access to the EU market. So they actually prefer this to a deregulated free-for-all, even if it imposes higher costs in terms of wages for labour. Is this anti-competitive? Well, there is a trade-off. They get some protection from global competition in the EU customs union - repeat some, but in return there are more robust labour, environmental and other protections.

[Nanikore]

Very interesting post Chris. I think after Covid in Britain we are going to get an interesting test case of two major opposing theories with regards to Globalisation. The default Neo-classical/Neo-liberal view is that globalisation is a win-win situation. The opposing view is that it strengthens the strong at the expense of the weak, leading to greater divergencies and inequality through accumulations of capital. One of them is the dependency arguments - for example a country can become dependent on cheap imported labour that disempowers labour everywhere.

Now, in Britain we might be seeing that supply to an infinite labour source cut off. It will be interesting whether this leads to increased wage and other bargaining power for native labour. An interesting real world experiment.

https://www.theguardian.com/business/2021/may/17/uk-faces-labour-shortage-as-covid-and-brexit-fuel-exodus-of-overseas-workers

[Nanikore]

"No. Immigration does not reduce natives' wages (except very slightly for a minority)."

I'm not necessarily an opponent of immigration, but this can't be said so definitively. Even some in the mainstream, such as David Card point out this.

If you make this assumption you are drawing on neo-classical theory and econometric models, both unlikely to make definitive statements about anything.

Portes, I would not use as an authority. Certainly not an impartial one. He was linked to the decision to hastily expand the EU and downplayed the likely extent before the expansion and then the consequences after it. We know where that led: a surge in foreign labour inflows (even if this was during economically adverse times - that was always a possibility), the rise of Farage and Johnson, a whole discussion about "taking back control" and remain losing the referendum.

What we can say, and Card says this, is that economists understand very little about the economic consequences of immigration, but that the effects are complicated and localised. He found in certain US cities, for example, that it did have a significant downward effect on wages of low income, low skilled labour.

Also what type of immigration? Refugees are different to labour flows.

To explain the long decline in labour productivity and wages and inequality (they might be linked, one of many links),one cannot rule out very large foreign labour inflows over a long time (which will likely have positive and negative distributive effects on wages).

[Nanikore]

I should qualify what I said, I am not an opponent of immigration, including high rates of immigration. But I do believe that local concerns need to be heard before they are hijacked by the far right. Very often these can be dismissed as ill-informed and xenophobic, but not always.

[TowerBridge]

Thoughtful posts Nanikore and Jan W. Got me thinking about my general non-opposition to immigration.

[Jan Wiklund]

I suppose that markets, redistributions and reciprocal gifts (to use Polanyi's three categories of organizing an economy) all have their pros and cons for the public in general.

The trick is to assess when each of them has a comparative advantage.

For example, markets are out of the question when one deals with rights. If healthcare is a right it can't be distributed according to which customers were more or less profitable.

On the other hand, I wouldn't like to live in a society where book publishing was planned by an authority and distributed according to some kind of reason of state.

So a serious political movement should think of when each of them are best for us all. About what the capitalists do for themselves.

[Blissex]

«"No. Immigration does not reduce natives' wages (except very slightly for a minority)."
I'm not necessarily an opponent of immigration, but this can't be said so definitively.»
«Thoughtful posts Nanikore and Jan W. Got me thinking about my general non-opposition to immigration.»

But they are somewhat ill informed, because the statement by our clever blogger is so warded by qualifications and so narrowly construed that I consider it dissembling. Those who have not read the relevant literature may not be aware of that.
Conversely there is a large body of literature and advocacy that shows that high volumes of immigration (and more generally population increase) is "anti-inflationary", and it is easy to guess what really means.

My guess is that our blogger is cleverly using what I think is dissembling because he sincerely believes another paper that argues that immigration to rich countries from poor countries is the most effective way to relieve global poverty, despite the vast and compelling and obvious evidence (backed by a lot of literature) that foreign investment is far better (e.g. Singapore or China's coastal region).

[Blissex]

«As Corey Robin says: “The priority of conservative political argument has been the maintenance of private regimes of power.“»

That looks like the usual neoliberal/"whig" propaganda about "identity politics" that our blogger is fond of repeating; and like the cleverly constructed claims as to the impact of immigration, I find it quite amusing that our blogger is so keen on "whig"/neoliberal talking points (beloved not by coincidence by clintonista/blairite right-wingers).

It is rather more reliable to understand that “the priority of conservative political argument” has always been the support of the interests of incumbents, whether incumbents in “private regimes of power” or in "free markets", and that which categories of incumbents are most supported by “conservative political argument” changes with time.

When the dominant incumbents were "tories" with incumbency in hierarchies of personal power, that was “conservative political argument” supported, from advocacy of the "divine rights of kings" onward; now that the dominant incumbents were "whigs" with incumbency in globalised and financialised markets, “conservative political argument” supports mostly more immigration, bigger leverage, etc.

[Blissex]

«support of the interests of incumbents, whether incumbents in “private regimes of power” or in "free markets"»

To be complete, “private regimes of power” or in "free markets" are not the only types of incumbency. Neoliberal propagandists like Corey Robin (and our blogger) mention *private* “regimes of power” in particular, but for a large part of history there have been quite obvious *public* “regimes of power” like feudalism and its estates-based jurisdictions, or other regimes of incumbency, like that of the caste system of India (somewhat similar but also different from feudal regimes of incumbency).

Note: neoliberals/"whigs" emphasize in particular incumbency based on power, and in particular on *private* power, because the conceit is that "the markets" don't give undue power to anybody, only that based on "merit", and in particular don't give anybody undue *private* power because they are based on transactions where both parties trade impersonally with each other, so for example the "whig" notion of marriage as a contractual trade between market participants.

[The Rage]

Market power is driven by bourgeois morality. Socialism sees women as cattle while the conservative as state granted property. The problem is, that feminizes men as they are no longer allowed to be their natural self.

Trade barriers are irrelevant. Immigration is irrelevant. When the debt ponzi of capital collapses, the conservative will be toast. The feminist will be toast. England will be toast. Do you get this or too stupid??? de Rothschild backed Tories bucking against dollar hegemony have no more future than EU neo-liberals. The world will be in anarchy where Thomas Carlyle comes into view.

[rsm]

"Brett Christophers styles this as ‘rentier capitalism’, in which ownership of key types of scarce assets - such as land, intellectual property, natural resources, or digital platforms - is all-important and dominated by a few unfathomably wealthy companies and individuals: rentiers. If a small elite owns today’s economy, everybody else foots the bill."

Who footed the bill when I made an option killing, doubling my investment in a week, buying XOM calls before a company event? Whose rent did I steal?

My guess is that the market maker I bought the call from hedged it with stock, so as the call value went up so did their stock holding. When I sold the call at a profit they could have sold the stock at a profit to someone who wanted to buy at that price (perhaps another hedger?).

Options markets set prices, and options markets can cause balance sheets to expand without limit. Central banks have proven the system is easily backstopped in psychological panics by printing more public money to backstop the privately-created money.

It's funny that when little guys figure out how prices are being set and try to take advantage, everyone is falling over themselves calling for more regulation of social media. Meanwhile the gas price you pay at the pump has far more to do with momentum trades in oil futures than with physical supply and demand for oil.

The term 'rentier capitalism' is misleading because it ignores the vast amounts of money emerging from financial markets, for which no one "foots the bill". Central banks just create money as needed to "foot the bill"; no taxpayer is debited when the Bank of England buys public and private bonds.

[billb]

Immigration allows governments to run their countries on 'Business as Usual' models without having to invent new economic models to cope with falling populations.

[ltr]

Brilliantly perceptive essay, Chris.

[The Rage]

Central Banks don't create money. They unload debt and destroy it. Lazy lazy analysis. It's when the debt can't be offloaded and nobody wants the asset that will finally end the scheme.

[rsm]

The Rage, I got a US Treasury I can sell at par to a private market maket, that I bought for $98. You want that asset? Or is it worthless because your model says so? When do you think it will become worthless? Because I've been hearing the same "end times" prediction since Peak Oil was supposed to end the Petrodollar in the seventies ...

[Blissex]

«Central Banks don't create money.»

Indeed, it is *vendors* that create "money" by accepting IOUs as money, without significant discount.

«They unload debt and destroy it.»

That is a very good insight! In the way I word it, they act as "vendors of last resort", by accepting (selected) IOUs as money in payment for their own IOUs, without significant discount.

«It's when the debt can't be offloaded and nobody wants the asset that will finally end the scheme.»

In the way I word it, when vendors stop accepting some IOUs as debt, or demand huge discounts on them. That is when vendors (in particular foreign suppliers) start demanding to be paid in "hard currency".

[rsm]

The US dollar is the hardest currency. Fedcoin will outcompete Bitcoin. The UK gets unlimited access to hard US dollars through unlimited central bank currency swaps.

If the Chinese try to demand payment in Yuan, they will have to give up control of their currency. The Fed has no control over Eurodollars; the Chinese do not want that to happen to Yuan.

Tl;dr: vendors love US Dollars, and the US loves the UK.