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Markets are for People

Based on When Corporations Rule the World by David C. Korten
Kumarian Press and Berrett-Koehler Publishers, 1995)

Markets and trade have essential roles in a world of just and sustainable societies. It must be clear, however, that they have no legitimate function other than as means to meet human needs. In the end, the most important test of the legitimacy and performance of any economy is the extent to which it assures the right of every person to a means of livelihood adequate to support full and healthy living. By this standard, most of the world's economies are failing miserably, including the U.S. economy. It should not be a difficult standard to meet given present levels of technology and organizational expertise. However, it requires making markets accountable to all people, not simply those with the most money. This means that markets and trade must both function within a framework of rules established and enforced by open, democratically accountable governments.

Democratic Pluralism

A struggle between two extremist ideologies has been a central feature of the 20th century. Communism called for all power to the state. Market capitalism calls for all power to the market—which in a globalized economy means rule by global corporations and financial markets. Both ideologies lead to the concentration of power in distant and unaccountable institutions.

In the heat of ideological discourse it is easy to overlook the fact that the secret of Western success after World War II was not a reliance on "free" markets. It was a reliance on markets that functioned within strong regulatory frameworks administered by democratically accountable governments. The result was a system that was both more democratic and more pluralistic than either the communist or capitalist models.

Given all the shouting in praise of the triumph of the market economy, it is instructive to note that of the world's 100 largest economies, 50 are now global corporations. Though the managements of these corporations may chose to decentralize many decisions, the economy internal to a corporation is not a market economy. It is a centrally planned economy. Transfer prices may be set, business units may be bought and sold, workers hired and fired—all at the will of top management, with minimal recourse by the workers or communities affected.

We are not replacing democratic pluralism with competitive markets. We are replacing it with a corporate planned and managed economy, planned and managed for the exclusive benefit of the top managers and the wealthiest shareholders who are reaping the major rewards of growth in the present economic system. Those who bear the burden, the workers and communities desperately competing for scarce jobs in a global economy are told they have no choice but to acquiesce. We call it being globally competitive.

Markets Need Governments

Contrary to commonly heard claims, markets need governments to function efficiently. It is well established in economic theory and practice that markets allocate resources efficiently only when they are competitive and individual firms internalize the full social and environmental costs of their production. Since successful firms invariably grow larger and more monopolistic, governments must regularly step in to break them up and restore competition. Similarly, since externalizing costs is a major source of significant competitive advantage, there is tremendous pressure on individual firms to do so to the full extent that public regulatory processes will allow.

As Herman Daly and John Cobb point out in For the Common Good, for a national government to perform its essential functions in support of market efficiency it must have jurisdiction over a national economy. Only when a strong democratically government is able to set and enforce a necessary framework of rules for the market can the sovereign people hold the institutions of money accountable to the public interest. Eliminating national economic borders—a process that has been aggressively advanced by the structural adjustment programs of the World Bank and IMF and trade agreements negotiated under the General Agreement on Tariffs and Trade (GATT), the Asian Pacific Economic Community (APEC), Maastricht, and the North American Free Trade Agreement (NAFTA), severely limits the ability of governments to set such a framework.

Whether intended or not, the consequence has been a step-by-step freeing of global corporations and financial institutions from public accountability for the impact of their actions on the living world. When considering the consequences, it is important to bear in mind that the consolidation of the world's national markets into a single borderless global economy has not come about as a consequence of inexorable historical forces. This consolidation has been accomplished through the intentional efforts of a small group of powerful decision makers whose view of reality is dominated by the corporate interest. If people chose to reclaim the power of governance that corporations have usurped, it is entirely within our means to make other choices.

Conditions for Market Efficiency in the Public Interest

The market is an important and useful human institution for meeting those needs to which it is suited. Market economies are most likely to serve the living-world interests of people when:

When any of these conditions are not met, the market is prone to function in ways contrary to the human and natural interest. A globalized market tends to negate all of these conditions. The result is enormous social inefficiency and malfunction—as the world is now experiencing.

It is time to move beyond an economic model that is captive to the imperatives of the money world. The human future depends on finding more holistic approaches to dealing with poverty, unemployment, and social disintegration that give priority to meeting basic needs, restoring the bonds of community, and healing the planet. The idea is not to exclude the market or productive enterprise, but rather to assure that their function is consistent with the principles of equity, sustainability, and civic engagement.

Advocates of the free market commonly argue that the market is the most democratic of institutions, because businesses prosper by responding to consumer choice. It is a disingenuous argument. Democracy is based on the principle of one person, one vote. The market functions on the principle of one dollar, one vote. Consequently, under conditions of unequal economic power, a society ruled by the market is a society ruled by those who have the most money—the antithesis of democracy. Further distortions result when huge global corporations acquire the power to manipulate cultural symbols and consumer demand through advertising and control of mass media. When tobacco companies set about to sell cigarettes to children they are not simply responding to an established demand, they are creating it.

It is often forgotten that Adam Smith's classic treatise, The Wealth of Nations, explains that markets tend to favor the public good only under those conditions in which buyers and sellers are small, the ownership of capital is local, and there are no monopolies or trade secrets—conditions wholly different from those that prevail in our present global economy. Smith was a dedicated foe of large corporations, absentee ownership, trade secrets, and monopoly power. See The Betrayal of Adam Smith

Unfortunately, he never dealt with the question of how to maintain the conditions under which the market achieves a socially optimal allocation of resources. We have since learned that this requires a strong hand from a democratic government held accountable to the public interest by a politically conscious and actively engaged civil society.

Globalize Consciousness, Localize Economies

Paul Hawken makes the point that it is big business that both creates the need for big government and renders government ineffective. The bigger our corporations, the greater their power to externalize costs and the greater the need for big government to protect the public interest and to clean up the consequent social and environmental messes. It is also the interference of big business in the political process that renders governmental action ineffective. The more we cut our giant corporations down to human scale, the more we will be able to reduce the size of government.

There is an important distinction between global and local businesses. In a global economy there is only one stakeholder with the clout to hold powerful corporations accountable to its interests—the global financial system. By contrast, locally owned and managed businesses operate within a context of community values and relationships, creating a framework in which business responsibility is more likely to become a natural self-interested act rather than a suicidal act of self-sacrifice. If we want a market economy that responds to community interests with a minimum of intervention from big government, then we must look beyond the classic choice between corporate capitalism and state socialism and give serious attention to a third option—restructuring the system of finance and ownership to link business interests with community interests.

In the name of creating a level playing field, proponents of economic globalization are rewriting the world's trade and investment rules in ways that give ever greater freedom to rootless global corporations to prey on local economies with impunity. It is a prescription for economic, social, and environmental disaster. If we are serious about making business more responsive to the community interest, we must advance policies that do just the opposite—favor smaller locally owned and managed enterprises that compete fairly in local markets, provide secure employment, pay a fair share of local taxes to maintain essential public infrastructure, play by local rules, and function as responsible community members.

To favor local enterprises is not isolationist as most advocates of globalization maintain. To the contrary, it is essential to moving from a world in which every person and community is pitted against every other person and community in a life and death struggle for survival—to a world in which people can achieve the economic security required to engage in cooperative relations with their neighbors—whether they be in the United States or in other countries—to freely share experience, ideas, culture, and technology to the end of helping all people live a better life in balance with the earth. It is our consciousness—our ways of thinking and our sense of membership in a larger community—not our economies—that should be global.