The Role of Markets

This article is part of the Weekly Workgroup Series published by the Rockridge Institute in early 2008. It was written by Joe Brewer (Rockridge Institute staff member) on Wednesday January 30, 2008.

Welcome to the Weekly Workgroup, where topics inspired largely by your questions and comments on Rockridge Nation will be explored in greater depth. Combining the success of our Thinking Points Discussions last year with your desires to gain practical insights into the issues you care most about, my hope is that we can foster stimulating discussions that provide grounded and useful contributions to your political life.

The first discussion is inspired by an excellent question posted on Rockridge Nation last week by member eslats about the role of markets:

Having just read your white paper on health care, I see your disdain for the neo-liberal belief that the market can be used to ‘do good.’ As an economist myself, it is clear that the market ‘fails’ completely performing some functions such as national defense, and that it ‘fails’ partially performing other functions such as environmental protection and perhaps health care.

What functions do you see for the market? What does it do well? Where are regulations necessary? What degree of regulation do you see and where? Are there any cases in which you see markets as performing adequately?

Quick Clarification:
When writing our health care report, we expressed the need to get away from the Market Frame when talking about health care. It was never our intention to suggest that markets are inherently bad. Rather, in the case of health care it is problematic for health insurance companies to earn profits through the denial of care.

I would like to begin a discussion by suggesting the following:

  • Markets have no objective existence
  • The way we understand markets depends on a web of concepts
  • The broader moral worldview helps guide our thinking about the role of markets

A few thoughts about each in turn:

Markets have no objective existence.

When we talk about markets, we refer to them as though they are “things in the world.” This is because of a particular metaphor, Ideas are Objects in the World. This metaphor is activated in our brains outside our conscious awareness – blinding us to the active part we play in constructing an understanding of markets. The way we conceptualize what a market is will shape the physical manifestations of markets in the world. This is how, in terms of human cognition, markets are social constructs.

As an example, prior to the invention of the stock exchange our concept of markets was about the concrete places where goods and services are exchanged for something of value. When the idea of trading shares of a company was introduced, human interactions were transformed through the creation of new social environments.

The way we understand markets depends on a web of concepts.

As the example of the stock exchange shows, the concepts we use to understand markets change depending upon other relevant concepts that inform our thinking. For example, markets are understood as being different from government, society, individual people, and so on. Yet, the way we understand each of these ideas will shape the meaning of markets.

So if government is understood to be an institution that protects its citizens and empowers them with freedom and opportunity (the progressive version of government), markets are understood as tools created to achieve various purposes determined by the people. Government as a form of authority that promotes individual discipline and personal responsibility (the conservative version) will lead to a different understanding of markets as an independent entity distinct from government that is its own form of rewards and punishments for individual actions – the “free” market.

The broader moral worldview helps guide our thinking about the role of markets.

When we acknowledge the importance of relevant concepts for shaping what a market is, we can have a productive conversation about the purpose a market should serve. It all depends on how you think the world should be (your moral worldview).

Our society is confronted with many problems. Should markets be used to solve them? We might talk about the need to transform our relationship to energy in the midst of the climate crisis, peak oil, and the security threats associated with volatile regions of the world. There are several moral purposes here: make the world safe and inhabitable for future generations, ensure that our economy can provide for our needs, promote peace in the world, etc. I argue in Energy Crisis Won’t “Wait for the Market” that we need to construct markets that promote the energy systems we need. Markets are well suited for the task, as long as we realize that not any market will do. It must be the right kind of market. One important feature is that it must internalize the costs of environmental harm.

With health care we have a different moral purpose: to promote health and provide care for the sick. We argue in Don’t Think of a Sick Child: The Logic of the Health Care Debate that our current crisis is worsened because health care has been framed as a market phenomenon. An important idea is that the health insurance industry operates in a manner that contradicts how markets typically work. Instead of generating profits by providing more service, health insurance companies make more money by collecting premiums and providing as little service as they can get away with. In other words, they make money through the denial of care. The moral purpose of a for-profit company conflicts directly with the moral purpose of health care.

Markets can be used when they serve the moral purpose at hand. In those instances, they should be designed (legally constructed through public policy) in a manner that is consistent with the purpose they are meant to serve. In some cases, such as health care, markets are inappropriate and different tools should be used.