Tomorrow's humane economy - economic theory, past and present

Countering the previous viewpoint, the author turns to history to show that belief in the market as the best of all social orders is an old ideal that does not bear up to scrutiny

Since the early 1980s, when the Thatcherite and Reaganite revolutions were in full swing, the doctrine of neo-liberalism appears to have staked itself out across the counties of the world without meeting much serious opposition. But negative reactions to the spread of free market philosophy have ensued as the damage it has caused -- in terms of inequalities, impoverishment, social exclusion and environmental destruction--come to light.

Supporters of the free market advocate deregulation to the extent that all human activity would be run by the private sector, while public authorities would be left to manage the tools of coercion and law within a given territory: namely, the army, the judicial system, and (if only in part) the police and prisons. On the other side, supporters of a more humane economy, who have grown hugely in number over recent years, back a rather different formula for the good society: "yes to the market economy, not to the market society." In other words, they insist on the need to resurrect and re-establish regulation in new and varied forms so that it can cover today's global dimensions of economic activity.

The differences between these two broad schools of thought is at least three centuries old, beginning when the old divine order--in which political authority was enmeshed--collapsed. At the start of the 17th century, Galileo confounded the Scriptures by proving that the Earth rotated around the Sun. Shortly after, philosophers such as Thomas Hobbes and John Locke argued that the social order was not grounded in Providence, but in the decisions of individuals. The medieval dogma holding that all power came from God, who assigned each person his or her "natural" place in society, was shattered. From then on, societies faced a new challenge: defining the "social contract" that linked people with each other and with the state.

Two radically opposed forms of contract were put forward. The first "political" form placed its trust in the good will of individuals, who could freely decide the shape of the new social order. The second "economic" option suspected that this trust in fallible, fickle human nature was open to abuse. A new social order, these latter theorists maintained, needed rock-solid foundations--namely economic "laws," which are "natural" and thus unchanging.

The first such law is that everyone acts primarily out of his or her own personal interest, the main thrust of which is a desire for riches. This impulse is shared universally in all societies, the theory goes, and will eventually be the best method for organizing all of them. As a result, the market theory took its first step towards a utopian vision in which everything is subjected to its rules.

It is false to claim, as many neo-liberals do, that today's enhanced market ideology is essentially modern, and that the revival of rougher "political" regulatory mechanisms to check the supremacy of private interests over the public good would be a step backwards. Scottish economist Adam Smith outlined the fundamentals of the free market two centuries ago; regulation came much later.

In the 19th century, a number of very tightly controlled national and international markets gave way to a much more open market. The pendulum swung again, however, and as a result of the market's failure to deliver a workable, peaceful society, markets were refined so that they today include "rules, institutions and networks that control and monitor the creation of supply and demand and the relationship between them," according to French economist Jean Gadrey. But these interventions are now being challenged by a new wave of deregulation. Defining a market economy, says Gadrey, has hence become an "extremely contentious and political" issue--as well as a very urgent one.

A second flawed argument used by neo-liberals is that the market economy is the only source of wealth, and in particular, wealth for all (the notorious "trickledown" theory). The past 20 years, however, have testified to widening inequality, with the three richest people now wielding a fortune greater than the combined GDP of the world's 48 poorest nations.

The third error committed by today's free-marketeers is their denial of the fact that the real economy in fact rests on three foundations, as the Hungarian emigre political scientist Karl Polanyi argued. In a market economy, the terms of trade are fixed by prices that various participants in the markets decide upon on the basis of their interests. But hidden in these calculations are all sorts of non-market variables and contributions, starting with government aid and subsidies to firms.

In the non-market economy, the distribution of goods and services is largely handled by the public sector, which operates according to the rules set down by democratically elected authorities. This is the "welfare state." But beyond this, in the third, non-monetary economy, the priority rests on reciprocity, with services distributed by groups or people according to the social links that bind them together, whether in families, associations or mutual support groups.

Firms benefit from training and teaching conducted in the home, and thus draw on a fund of "social capital." Likewise, in the expanding service sector, businesses take advantage of intangible investments like education, which depends largely on the public sector, as well as on orders and investments from public authorities. They also depend heavily on the political decisions made by governments.

These examples go to prove that neither the oft-mentioned distinction between a market and non-market economy nor the claim that the former is the only source of wealth survive critical examination. Instead, we should adopt a more realistic and less ideologically driven model: that of a plural economy. By putting these various beliefs up for discussion, we can escape the tyranny of a market conceived as an abstract and impersonal norm imposed on everyone. Tomorrow's humane economy can only be built through the interaction of regulated markets, states and democratic civil societies.

* French sociologist and author of several books on the future of work and the social economy, including Une troisieme vole pour le travel ("A Third Way for Work," Desclee de Brouwer, 1999) and L'Economie solidaire: une perspective internationale ("Economic Solidarity: An International Perspective," Desclee de Brouwer, 2000).

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