The Economics of Enough_ How to Run the Economy as if the Future Matters - Diane Coyle [101]
A second reason that markets seem increasingly flawed now, as a social mechanism for matching money and values, follows from the discussion in the previous chapter of the way the structure of the economy has been changing. As discussed previously, more and more of the economy consists of intangible activities whose value is fragile and dependent on the social underpinnings of trust. What’s more, many activities now exhibit some of the characteristics of public goods. The way markets are structured and managed (as they all are, by government regulation and laws) needs to reflect the increasing interdependence and complexity of the economy. “Free” market outcomes are unlikely to achieve the best outcomes in terms of social welfare when there are important externalities and a growing degree of mutual independence. So in this chapter I’ll argue that markets remain a fundamentally important institution, but the next chapter will look at some of the new challenges of governance.
THE MERITS OF MARKETS
The economic and financial crisis triggered by the collapse of Lehman Brothers in September 2008 prompted in its turn a wider questioning of the role of markets in the organization of the economy and society. In fact, the questioning of the priority given to markets by the dominant policies in most countries had been under way for some time. The high tide of what some would see as the fetishizing of markets came in the years of Ronald Reagan’s presidency in the United States and Margaret Thatcher’s premiership in the United Kingdom. The collapse of communism in 1989 cemented their ideological triumph. But successive governments in both countries (as well as international organizations such as the IMF and World Bank) continued to emphasize throughout the 1990s not just the practical merits of markets but their preeminence in society. However, as the decade progressed, and the process of globalization extended the reach of the market economy, dissent grew too. Starting with the “Battle for Seattle,” a riot by demonstrators against the World Trade Organization meeting in that city in November 1999, the political movement against globalization and against capitalism grew ever more vocal. While it hasn’t ever grown to the scale and significance of the demonstrations of 1968, the anticapitalism movement has had a growing impact on public debate for the past decade. The recent crisis has reinforced the critique, and questioning the role and scope of markets has become a mainstream issue. It would be widely accepted now that “market ideology” went too far, especially via the financial markets.1
Figure 14. Riot in Reykjavik against capitalism.
There’s a paradox in this.2 The steady ebbing of the influence of promarket ideology since the late 1980s has coincided with a huge increase in global prosperity as the market economy extended its reach to other countries such as India and China, as well as the formerly communist nations of central and eastern Europe. In the advanced economies, too, GDP growth was significantly higher from the mid-1980s on than it had been in the sluggish years of the 1970s and early 1980s. The combined impact of new technologies and the global policies of deregulation and privatization increased the rate of productivity growth and the long-term potential of most of the OECD economies. Unemployment fell almost everywhere and most of these countries enjoyed the longest economic boom on record. The recent recession has been severe but hasn’t remotely reversed the gains in average per