Book Review

The market economic system is not the panacea for solving the world’s resource allocation problems, Edward Dommen says in his new book, How just is the market economy?

The little book by Dommen clinically dissects the ideology, theory and practice of the market economic system and aptly concludes that by over-emphasizing individualism and the acquisitive nature of man, the market economy has failed to address the key problems associated with inequality, poverty and social ills. This has resulted in rich individuals and nations getting richer while the poor are becoming poorer. This state of affairs is a failure of what the ideologues of the market economy say the system is supposed to achieve.

The proponents of the market economy have in the later part of the 20th century, and especially after the demise of communism, been trumpeting the market economy as the mechanism through which the world is going to become a better and safer place.

However, recent experiences and in-depth analyses of the models of the market have shown that what passes as a market economy is little more than robbery of the poor in favour of the rich. Indeed, although political processes, especially those modified by Christian values and mores, can correct some of the imbalances–as seen in some of the Northern European countries––the tendency of the market economic system is to magnify inequalities between the rich and poor, the haves and have-nots.

The book is especially salient for Kenya and other African countries going through the structural reform policies imposed by the International Monetary Fund (IMF) and the World Bank that harp on the need to adopt market economic models as the main process for resource allocation. Even though the two Bretton Wood institutions have a policy for social safety nets to cushion the poor, they view such nets as short-term requirements that will be no longer necessary once the market led economic reforms take root.

But, as Dommen demonstrates, the market economic model is unlikely to deal with such inequalities; it will instead make them worse. This is because creating a competitive environment in a country like Kenya is difficult where inequality is so large and information is skewed. Also, many people have no real choice for various reasons: they are too poor, the labour market does not obey the model since the workers are not free to withdraw their labour; and market distortion from international trade makes nonsense of the few efforts made to create conditions favourable for local farmers.

The problem of the market economy is that it relies too much on theories and assumptions that are difficult to attain. For example, the market economy is premised on perfect competition. In the market theory, the market ensures that every good or service is produced at the point where the cost of producing an extra item corresponds exactly to the price a buyer would be willing to spend to obtain an extra unit, the so called marginal utility. If the conditions hold, then for every good and service, nobody would be better or worse off. This condition, called the Pareto optimum, is not possible for several reasons.

First, it assumes equal distribution of incomes among a population. Such of course is a fallacy. It also assumes everybody has equal needs which is not the case. It inherently fails to take care of the poor, widows, orphans and other disadvantaged members of society. Inequality between buyers and sellers is the largest deficiency of the market economic system. Quoting from the Social Contract by Jean-Jacques Rousseau, Dommen shows that the freedom of the market economy is simply the oppression of the weak by the strong.

The author concludes therefore that if just one condition of the model does not hold, then logically, the model of perfect competition is defeated and hence the Pareto optimum cannot be achieved. It therefore follows that pursuing this principle will result in some people becoming worse off. This is what happens in real life.

The market theory is also falsified on the basis that no human being has perfect knowledge of the future, a key condition of the market-based economy. This relates specifically to the need to know the effect of any product or service in the future. For example, a company releasing a new chemical product today cannot possibly know all the effects it may have in the future. The effects, some of them harmful, should ideally be factored in the current price of the product so as to take care of the costs associated with them. However, since such full costs are not known they cannot be factored into the price and therefore such a product, if it enjoys market preference will be doing so dubiously as it will be selling at a discounted price. Indeed, any shareholder of the company which manufacturers the product, who receives dividends on the basis of the earnings of the “falsified” price should ideally pay such costs, when and if they appear.

However, since such mechanisms for restitution do not exist, it therefore means that a person selling such defective goods becomes rich at the expense of some part of the population, usually the poor, thus exacerbating the already unequal income disparities between the rich and the poor. And since the rich have a better chance of discerning the defective and harmful products in the market, which can be translated to higher medical costs for instance, the poor disproportionately bear the cost of the defectiveness.

Another problem of the market economy is that it fails to recognize that the market cannot be fenced off from the rest of human activity. An economy does not just procure goods and services to be bought by individuals or groups of individuals. It is also expected to provide certain collective goods and services. Frequently, such goods and services are removed from the market and financed by compulsory payments in the form of taxes. However, the production of those goods and services uses other raw materials and services that are themselves part of the market economy. Essentially, therefore, the common goods have an effect on the pricing of the other goods on the market economy by affecting the demand and supply of the intermediate goods.

Quoting earlier works by Christian Cameliau, that failure for the market economy to take into account collective needs multiplies problems of a collective nature. This can be amply demonstrated in our country today where the very rich are trying to buy their own security by hiring private security companies, putting up high perimeter walls and electric fences. However, such a “market driven” solution, fails to recognize that security is a collective need and the best solution is the collective service of a better-equipped, organized and motivated police force.

The result is increased insecurity for all. The segmented “private” and public market for security service has failed to deliver security to everybody. And the solution does not lie with “privatising” the police force, the dogmatic response for every failure of a public service.

The same is replicated in telephone, water, electricity services. Our country, with pressure from foreign multinationals who see these as opportunities to “accumulate” more profits with the excuse of “market-driven” reforms are pushing for the acquisition of such monopolies knowing very well that one cannot talk of a market economy and a monopoly at the same time.

Indeed, as Dommen clearly demonstrates, the market economy theory cannot survive since its success ultimately results in monopolies which then dominate. This is proven by the fact that every company tries to outdo the competition and drive it out of existence so that they can become a monopoly. As Dommen says, “one of the roles of the market game is to clear the field of losers.”

No enterprise would wish to see competition. But these enterprises still wish to convince the public that they are driven by market economy logic while logically their actions defeat this model. Indeed, the success of the market economy ideal would see it die since all goods and services would eventually be provided by monopolies.

What does Dommen prescribe as a solution, given his unequivocal rejection of the market economy? Dommen seeks answers in the life of the early Christian church. He finds ample evidence that, in order to arrive at better distribution of the world’s resources, it is necessary to love one’s neighbour as oneself, as taught by Jesus in Mathew 22:23. This Biblical injunction sets the theological framework on which a just economic system, one that does not seek to exploit the weak, the poor and the uninformed can be based.

Dommen borrows heavily from the belief that it is God who has placed the earth’s resources on earth for our use. We act only as stewards. We must therefore use these resources with moderation so that there is enough left for future generations. In this scenario, if what you have has freely been given to you, it follows that your neighbour is equally entitled to it. For this reason you should share it in an equitable way.

To check individualism and the acquisitive nature of human beings, Dommen suggests we need to follow Leviticus 25:23 which says “The land shall not be sold for ever: for the land is mine; for ye are strangers and sojourners with me.” This Biblical teaching, when combined with the injunction for the Sabbath and Jubilee years, ensures restitution, redistribution and moderate use of the world’s resources for all God’s children.

He notes that some of the processes and common practices of the market economy, including speculation and hoarding, may amount to stealing from the poor. Quoting from earlier authors he declares, “To the hungry belongs the bread which you keep.”

The author emphasizes that Biblical teachings have adequate safeguards against sloth, idleness and other forms of parasitism. The parable of the talent is ample evidence that it is God’s wish that people should utilize the resources that they have and even multiply them for the benefit of others and for the glory of God.

The challenge is, however, how do we share God’s bounty on earth equally? The current systems of setting prices are obviously not fair and just. To quote, “Unjust prices tear communities apart. If people think they are not fairly treated in trade, they will become alienated from the community and see no reason to sustain it.” Do we see parts of Kenyan society in this? Have we alienated some of our people, through unfair trade and other injustices, so much that they do not mind if the country were torn apart?

Given the continued display of unconscionable levels of profits that are the results of unjust price systems, stemming from an unjust market economy, some of our top political and business leaders may need to heed the words of John Maynard Keynes, the father modern economics as quoted by Dommen. He said:
The economic doctrine of normal profits, vaguely apprehended by everyone, is a necessary condition for the justification of capitalism. The businessman is only tolerable so long as his gains can be held to bear some relation to what, roughly and in some sense, his activities have contributed to society.” (A tract on monetary reform).

One way is to assure this contribution to society is to make certain that political processes have enough safeguards for arriving at a just price. Another way is to make certain that people are consulted in the process. Dommen cites an example of such a process from the Islamic tradition.

Other mechanisms include robust regulatory mechanisms that guard consumers against monopolies and the Polluter-Pays Principle. However, even these will fail if they are not based on the “love thy neighbour as thyself” principle.

This small book by Dommen, a member of the Ecumenical Advocacy Alliance, is likely to draw fire from the neo-liberal economic theorists but will kindle the hopes and aspirations of those who look for more ethical behaviour in the world economic system.