‘Nobody ever saw a dog make a fair and deliberate exchange of one bone for another with another dog.’ Adam Smith
After what happened to the first of the three little pigs, Richard Pratt was tempting fate in building his house out of cardboard, even if it was Visy Board’s high-strength, environmentally friendly Microflute.
When that sheep in wolf’s clothing, the ACCC, finally got round to blowing down Pratt’s house recently for price fixing after giving the cardboard king a few ‘gummings’ in the 1990s there were tears and excuses. But while news of Pratt’s crying was relayed by his lawyers, the tears were almost exclusively for himself and for the reputation developed over the previous decades:
I feel very angry Visy is seen as Richard Pratt’s company there is a certain amount of character assassination for me personally because I am a tall poppy in the community; it’s a big scalp (for the ACCC) My reputation is something I have been building for 50 years and so I am worried that the general public will now see me as a rich person who has made his money doing something that is wrong in the eyes of the law.
The price fixing revelations may have have besmirched Pratt’s reputation as a philanthropist, but Visy presented its decision to collude with AMCOR to fix prices of some products in some markets as something like a technical foul:
The company deeply regrets what happened and its poor appreciation of the complexities and applications of the various provisions [of the Trade Practices Act].
There was no concession of any actual harm done by the four price increases. In fact, the likelihood of harm to anyone’s interests other than to Pratt’s reputation was played down by his counsel: ‘Your Honour should not readily infer these customers […] sustained loss,’ Jonathon Beach QC said.
While big Visy customers like Coca-Cola Amatil and their consumers are not likely to agree, Pratt’s position evinces either his gall in making such a claim or his ignorance of the operation of markets. I am mean-spirited enough to believe that it is a bit of both.
When Australia’s third-richest person can claim not to understand the operation of markets, while the rest of us are beholden to a discourse of free markets, we know we are amid a catastrophe of economic ignorance. Unfortunately, there is evidence that this ignorance besets both the Right and the Left in Australian public life.
We have come to accept the rightness of free markets unblinkingly. In some sense, despite the presence of a sophisticated technical literature, we are discouraged from ever much thinking about how markets actually work.
Over the past 30 years, the free market ideas of Friedrich Von Hayek and Milton Friedman have made a long march through the institutions of the West, in the reformed command economies of the Eastern bloc, and in many developing countries. Treasuries and chancelleries, banks and business, universities, the media, NGOs, and even unions now talk the talk of free markets.
While anyone in receipt of government funds, protected by a subsidy, or holding recently issued government paper knows this has been an incomplete project, they also know that the idea of free markets is sacrosanct. In some sense, we are having to fight off WorkChoices because atrophy of the Left’s capacity for economic critique has given the Howard Government a free ride up until now.
Economic theory in the work of Adam Smith, David Ricardo, Alfred Marshall, right through to Friedman and even the latest Nobel Prize winners for economics, Leonid Hurwicz, Eric S Maskin, and Roger B Myerson gives us a sophisticated apparatus to critique the limitations of markets. But where is this critique in public life? Few ideas about the limits of free markets, except perhaps Adams Smith’s and Alfred Marshall’s foundational warnings about monopoly power, are part of the public discussion of markets and globalisation.
Instead, the misconception persists that free markets mean perfect markets, whereas perfect markets in which buyers and sellers possess perfect information, there is free entry for buyers and sellers, and there are enough suppliers for super-normal profits to be competed away are only an abstraction of textbook economics. When measured against such pure theory, free markets always fail. As in Adam Smith’s observation, one dog is always doing better than another in the exchange of bones.
Higher-level micro-economics often is preoccupied with the particular distortions of individual markets: health, transport, carbon, defence, agriculture, IT, and so on. For example, to be a health economist is to understand the health sector’s asymmetries of information, non-substitutable products, oligopolies, positive and negative externalities, the mandatory rather than volunteer nature of some transactions and the various limits on transferability.
So where is the Left’s public critique of market economics?
It seems that an unfortunate by-product of the otherwise laudable post-1989 vanquishment of the command economies has been the silencing of sensible centre-Left critique of market economics. I am not suggesting we need a critique that seeks to dismantle capitalism or reflexively re-regulate markets, just one that keeps a watching brief and can say something sensible.
Instead, free market ideas have become the Right’s version of political correctness. We are in the presence of shibboleth. To suggest that we have an unthinking or slavish devotion to the free market ideas is to risk excoriation as a Luddite, a union thug, an iron-sided Marxist, or just a plain nincompoop. Accordingly, when Rudd explains that he is an ‘economic conservative’ he is buying out of an argument that he cannot win, not because there are no other plausible positions to hold, but because there is no space or language for a more sophisticated critique of market economics.
The Left’s clumsiness with the complexity of economics undermines the possibility of a discourse where the benefits of free markets (say, economic growth and economic self-determination) might be discussed alongside their costs (say, the unsustainable consumption of resources, environmental damage and the asymmetrical returns to capital and labour of globalised industry).
The development of a critique of markets that can balance an understanding of these benefits and costs is the only alternative to either the old-fashioned sloganeering attacks on capital or the more contemporary acquiescence to all the wishes of capital.
On the other hand, we might ask: where is the Right’s critique of its own position? The recent debate over the near extinction of the disciplines of Economic History and Political Economy in our universities says a lot about how business and economics are taught as enabling techniques for business and not much else.
Undergraduate courses don’t problematise business or economics as forms of social relations or as types of cultural practices. The free market is accepted as an entirely ‘natural’ formation. Yet, often enough, marketplaces are socially or institutionally constructed. Political economy’s critical function, through its foundation in moral philosophy, is sacrificed to a simple acceptance of the rightness or at least utility of markets in all instances.
As we are all capitalists now, both the Left and Right need to refurnish their critical and technical discourse. To sustain a critique of capital from within requires an acquaintance with the logic and language of economics and of markets.
No one really cares about Richard Pratt’s reputation or his $36 million fine but to not understand the markets that we believe best serve us is to leave ourselves entirely serving them.
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