Why a Just and Sustainable Society cannot be Based on Swapping Things, Pt. 2: Hierarchical Trade

Market organization is equivocated with horizontal organization by today’s pro-market intellectuals, or contrasted with hierarchical organization. The collapse of the USSR, the “loss” of the socialist calculation debate, and the general victory of neoliberal capitalism over global political control has led to even left-leaning intellectuals to kowtow the virtues of the market, or to quietly accept the idea that hierarchy and markets are diametrically opposed. Whether the aforementioned events are due to the lack of merit of non-market, horizontal forms of organization, or due to skewed support for capitalism based on intellectual double-standards, the simple fact is there are non-hierarchical forms of organization that are not markets. The direct implication of this is that free trade and free markets are not synonymous or analogous with freedom, or even essential to freedom.

“Free trade” and “free markets” today are considered by market essentialists as liberatory practices, even acts of defiance against the oppressive governments who seek to maintain a strict range of human freedoms by regulating trade. For those who are/were actually in charge of developing the institutions of free trade, however, it has long been an advanced form of colonialism. In traditional colonization, a state conquers a foreign region and forces them to export valuable commodities to the home state. The home state must continuously reproduce the relationship by subjugating and governing the colony. Besides requiring the expenditure of lots of the empire’s resources, it also tends to breed resentment and unrest, eventually leading to the colony overthrowing the colonial government.

Typically, the commodities produced by the colonies are raw materials like metals, foods, and lumbers, or luxuries like furs, spices, or gems. These were exported as materials and made into finished products by the colonizer. Colonization was most common during the transition period between feudalism and capitalism, where imperial states used mercantile principles to accumulate power over other states. In this period, states focused on obtaining power over other states by creating a positive trade balance, exporting more than they import and having mostly finished goods in their own country. This was the earliest form of differential accumulation, the primary process of gaining power in the capitalist system.

Mercantilism is a complex political theory which has been in use for centuries, but the critical element is the goal of creating and maintaining state power through the accumulation of wealth. This involves industry protectionism in order to allow them to compete with established foreign industries, establishing a “positive trade balance”, exporting more goods/services than the country imports, and generally giving special favor to national infrastructure and industry. Britain established itself as the largest empire in history using mercantile practices, which it continued through the 19th century. Even today, countries that adopt protectionist policies become more, not less competitive in the global marketplace. China is the most obvious example, with the vast majority of its most powerful enterprises being state-owned, and only after establishing itself did it adopt any liberalizing policies, which marketeers of course now claim is responsible for their growth, in jaw-dropping opposition to very clear evidence to the contrary. Brazil followed a similar path in the late 2000s, adopting “neo-mercantile” (or just mercantile) practices to make key industries globally competitive (Abu-El-Haj).

Capitalism at its core is little more than privatized mercantilism. Especially today, where there are a great many corporations with more wealth and power than entire countries.   Corporations, who have internal governance, take a significant, nation-like role in foreign affairs, and have their own forms of jingoism and statecraft, large corporations function much like the nation-states of the mercantile period. Private states maintain their own form of positive trade balance, called capitalization: Capitalization—having the expectation of future income—is the private form of the positive trade balance. A company that is highly-capitalized is acquiring more wealth than it gives away. A company that capitalizes at a faster rate than other companies is more powerful.

Protectionism takes new forms under capitalism, as well: Rather than being concerned with the status and wealth of nations, these concerns are centered on private parties. Capitalist businesses create favorable institutional environments for themselves by exerting cultural and political influence and/or expanding beyond the boundaries of single legal and cultural systems. For example, companies set themselves up in multiple countries to exploit legal or environmental loopholes. However, this expansion is not limited to simply the company itself: many of the iniquities of capitalist industry are perpetrated by businesses in countries that are supposedly not capitalist, and which are not directly affiliated with the first-world businesses that include them in their supply chains. But to suggest that these iniquities are not part of capitalism or the responsibility of the first-world businesses is to ignore capitalism’s and the first-world’s role in reproducing these industries. Likewise with any market, the potential to mask inequalities through the degrees of separation that quickly accumulate in market exchange raises concerns about the ability of markets to reduce hierarchy.

Free trade is a form of colonialism because of the combination of history and market dynamics: If colonies are simply given nominal rights without the ability to fulfill those rights materially, their rights are symbolic and empty. Free trade will not lead to a fundamental change in the relationships between the traders: If a former colony is structured and positioned around the production of raw materials, then left to trade freely, it will not be able to change its position without either support from its trade partners or not participating in free trade. Without protectionist intervention, a developing country will not be able compete with the established and far more efficient industries of a well-developed, foreign rival. Even with intervention, the country may lack the knowledge or resources to even begin to create a more advanced industry. And unless technology reaches its peak, the superior country, continuing to develop its technology and industry, will likely pull even further away.

What the less-developed nations trade in gives them far less bargaining power and profit because of the ease of producing simpler products relative to producing more complex products. This is a self-reproducing colonial relationship, one that gives the illusion that the colonized nation is free. There were certainly those who knew and nakedly spoke of this; from Semmel’s The Rise of Free Trade Imperialism: “One Whig, speaking before the House of Commons during the Corn Law debate of 1846, described free trade as the beneficent ‘principle’ by which ‘foreign nations would become valuable Colonies to us without imposing on us the responsibility of governing them'” (Semmel, 8)

The concept of free trade was first popularized during the debate known as “the colonial question”, that of what to do with British colonies after the American revolution, and what to do with the growing excesses produced by an increasingly advanced British industry. It was decided, based on the interest of British hegemony above all other factors, that free trade should be the prevailing solution to this problem. With free trade, the superiority of British technology would keep them in the superior position, while the technologically undeveloped colonies would stay in their inferior positions by virtue of their inability to trade anything other than raw materials and unskilled labor. It was estimated by theorists at the time that British superiority would last at least 100 years (Ibid., 17).

Free trade reproduces or worsens hierarchical relationships. After all, poor people, by virtue of their poverty, have little to offer wealthy people. They are inevitably thrust into hierarchical relationships for most of the potential actions to relieve their poverty: they can go into employment, renting themselves to a wealthier person; they can take a loan from a wealthier person, making them debtors; they can accept charity from a wealthier person, which rarely fixes the problem; or, they can somehow find a way to trade with people with wealth, subordinating themselves to others’ whims in order to fulfill their own. The number of potential ways to reproduce, worsen, or leave intact existing hierarchies through trade are much more numerous than the number of potential ways to reduce hierarchy through trade. This goes for not just individuals but organizations, communities, and nation-states, as well.

The very act of determining all provision by the exchange of individual property directly creates a hierarchy of social status, according to individual wealth and the individual’s primary position in the market. The status of sellers is inherently higher in trade because they are less numerous–production nearly always requires a coordinated effort of groups, while consumption does not–and have needed resources. In the general case, there will be many more buyers than sellers, giving the sellers greater bargaining power in terms of both competition and information. Sellers are aware of the value of the information about their products and only share what is necessary. Buyers are largely unaware of the value of their information about their preferences, and share it freely by shopping and performing other market activities. If buyers organized at roughly the scale of the sellers and equalized the level of information between parties there would be a balance of bargaining power, but still a lesser range of willingness to buy/sell than would lead to true equilibrium prices.

Sellers have a plethora of different commodities, yet all buyers are offering money. Because money can be gotten from any buyer, there is little trouble or disadvantage in price negotiation to marginalizing certain buyers or only exchanging with a small niche of them. Ostracizing the seller of an important product is far less free of consequence, and cannot always be solved by simply “starting a competing business,” as the optimistic free marketeer will inevitably suggest. More importantly for a liberatory society, there is a hierarchy of buyers for whom there are vastly different consequences for marginalizing or otherwise not doing business with. The consequence of failing or refusing to do business with the richest group of people has far different consequences from failing or refusing to do business with the poorest group. The preferences and peculiarities of the wealthy will therefore be more strongly exhibited in the market than those of the poor.

On the other hand, if a seller has a claim on something the buyer cannot go without, like food, water, medicine, or energy, avoiding certain sellers is much more problematic for buyers. With each market having different demographic and relational characteristics, there is for each a hierarchy of constraints on the buyer: In a market for something the buyer really needs, like a house or food, need takes precedence over anything else. Most buyers will compromise their other values, their ethics, and their future liberty to fulfill a need. In a market where there are few sellers, the degrees of freedom that the buyer has for a purchase to reflect his/her collection of needs, values, and ethics is no greater than the number of sellers. If I have twenty choices of computers and all of them are built in Asian sweatshops, I have the choice of getting by without a computer or compromising my ethics to get one. As I shall explore in a later part, this choice is not reflected in the market.

One of the many benefits of the theoretical free market, in contrast to today’s markets, is that this particular problem would be eliminated because of the presence of free competition, and reduced/eliminated barriers to entry. However, this simply whisks the problem away to a world where everything just works. Using an implicit framework with lots of questionable assumptions and dubious conclusions made from those assumptions, the analysis of free marketeers is reduced to the lazy process of pointing to difficulties in trade and rectifying any of them with “if only we had free markets.”

For one, competition, even if it works perfectly, does not eliminate hierarchy in markets; it can hypothetically reduce it, but there are also intrinsic hierarchies to market relations. These are typically dismissed by marketeers based on their continuous rearrangement. With the individual as the basic unit of analysis, it is easy to dismiss negative market outcomes via the mechanism of competition: If an individual does a negative thing, then he/she will be less competitive and therefore his/her behavior corrected, or in this case, hierarchies will be destroyed. This is easy to believe because it takes for granted half of its mechanism: That there will be some or many opposing alternative(s) to which the offended consumers can switch. In practice this is cannot be the case all the time: There are only so many people within a market, and with a growing diversity of products and services, the number of competitors would be expected to shrink, not grow. Along with it, the likelihood that a viable alternative exists for a given product produced by a bad-behaving producer would shrink over time.

Because competition is supposed to eliminate problems via the responses of the market to consumer demands, it removes the responsibility for producers to eliminate hierarchies, making it the problem of consumers, who must observe, reject, and disturb the business’s income sufficiently to cause the business to understand and respond to the problem. The businesses themselves cannot do anything without the approval of consumers conveyed through impartial market forces, so it must be consumers that cause pollution and commit ethical violations, and thus it is their job to fix what they consume in order to stop such negative outcomes. That is, assuming that consumers even have an alternative to go to, or that the consumers’ alternative is viable for business at all (e.g. the music business pays musicians very little, but there are no better alternatives that pay them more), or that the power of producers is not simply too great to be disrupted (e.g. we can’t simply switch to using something other than fossil fuels).

This last point is significant, because the free market is a place where differences in power are ignored or presumed impossible. Markets, according to their proponents, are shaped only by market forces (as long as they are completely free). It’s true that markets are driven by forces; not in the Newtonian, impartial property of the universe sense, but in the Veblenian social power sense. Markets depend on institutions just like any other social process, and since there is no unanimous agreement on what those institutions are supposed to be, there will be partialities and the influence of power over the market. Without the possibility of perfect competition, one or both of those involved in trade will have some power over one another, and in markets it is easy for the exploitation of power to generate immediate and concrete benefits. The benefits that come from this often give the benefactor even greater power to further exploit, turning minor differences into major ones through a power arms race.

Without the perfect rationality that is also injected into the theory of markets, things such as risk aversion and altruistic selfishness, ignorance and indifference, and cognitive biases & unconscious incompetence all disrupt the theoretically perfect responses of the market to changes in the economic sphere.   Even the so-called laws of economics are either plain untrue (such as Say’s law) or simply observations of a particular arbitrary human behavior among many possibilities (such as the law of supply and demand). The law of supply and demand in particular is most problematic for anti-capitalist market theory, because it is the behavior of capitalization that is behind this “law”: Someone who sells a good and anticipates a greater willingness to pay by consumers as his supply dwindles will capitalize on that greater willingness to pay by raising prices. This cannot be a law because it is perfectly possible for a seller not to do this, and to keep her prices the same. It also assumes that supply and demand are the only independent variables, “willingness to pay” always being some fixed function that is dependent on supply/demand and utility, or indifference curves, or fixed, rank-ordered preferences. In reality, willingness to pay/sell have very little to do with supply or demand, and much more to do with the relative bargaining power of each party.

Markets are a place where power is directly quantified; a person’s wealth and income is representative of that person’s ability to change the behavior of other market participants. The purchase and sale of commodities is the definitive focus of market analysis, yet without the ability of money to direct and organize people, the shuffling of commodities would be pointless, and the commodities themselves would not even exist. Money has always been a tool for changing social relations, and today that is no different: It is the engagement of people in industry that is supposed to make markets important. Most treatments of markets include employment, which is an overtly hierarchical relationship, one that is seldom justified beyond being voluntary. Even the exchange of commodities is really a change in the social relations regarding the commodity–a transfer to the buyer of the right of the seller to exclude others from that commodity. The physical transfer of something from one person to another is not what makes it their property–it is the conveyance of the right to exclude others from usus, fructus, and abusus that makes it their property. The ability of money to influence people is none other than power, and any monetary inequality in the market is a directly-observable hierarchy.

Sellers clearly enjoy significant status over the rest of the market, being fewer in number and in a superior position in terms of market power. Sellers enjoy a higher status than donors; where a seller is inherently compensated for his/her (subjectively-valuable) contribution, a donor is not. Being very generous results in decreasing status, while not being generous results in increasing status. Extreme generosity does tend to get punished as a natural part of human reciprocal behavior, but our social institutions should compensate for our faults, not reflect them. Lowest of all in status are receivers of charity, who, unlike buyers, have no decision-making power. To argue that this is because they produce nothing useful is disingenuous or wholly ignorant, e.g.: Wikipedia runs entirely on donations, but who will seriously try to argue that Wikipedia produces nothing useful? Because Wikipedia doesn’t follow the dictates of the market, because its value is extra-market, and because the solution to its need for funding is extra-market, market values cannot be said to accurately incorporate the many cases of Wikipedias (just a few more examples, civic associations, professional associations, unions, volunteer groups). Besides the nonexistent association between being unproductive and receiving donations, there is also the question of why we should punish a lack of productivity. The reward and punishment of productivity is clearly a creation of social hierarchy based on factors largely outside of the control of the individual, one which grows more extreme and reinforces itself as the productive class raises children with greater advantages in upbringing and education.

Then, of course, there are the “extra-market” hierarchies: An idea that is at best naïve, since hierarchies do not disappear within or because of the market. The market, which cannot really be separated from everything else and is not immiscible with the rest of the social sphere, is infused with politics and other social relations which are also not power-free. Ignoring the inequalities that markets cannot be faulted for does not render them inoperative within the market. Markets do not exist outside of any part of reality, and inequalities within their boundaries can easily be seized upon by those who have an interest (and there is certainly a personal benefit) in doing so. The problem of hierarchies in the market does not even require malice or iniquity, just apathy or ignorance. The apathy or ignorance to the existence of a hierarchy between parties conducting trade, all else being equal, will inevitably lead to a reproduction or worsening of the hierarchy.

Given that the idea of free markets is that they be free from control as much as possible, these problems don’t have an easy solution. The idea that they can be free from regulation, as well as the idea that they can be regulated to prevent their faults, both depend on a nonexistent separation of markets from the rest of society, or distinction between government/governance and economy/economics. The hierarchies of markets, and their ability to reproduce and worsen hierarchies from “outside” markets, casts significant doubt on their place in liberatory politics. Certainly they are not essential, and possibly they are unworkable.

References:

Abu-El-Haj, Jawdat. “From Interdependence to Neo-Mercantilism Brazilian Capitalism in the Age of Globalization.” Latin American Perspectives 34, no. 5 (September 1, 2007): 92–114. doi:10.1177/0094582X07306244.

This study seeks to show that Brazil’s growth comes not from adopting neoliberal free trade policies, a rehashing of the old English post-colonial theory of empire.  Rather than remain on the losing end of free trade, Brazil chose to adopt protectionist policies to improve its own industries.

Semmel, Bernard. In The Rise of Free Trade Imperialism: Classical Political Economy the Empire of Free Trade and Imperialism 1750-1850, First Edition. Cambridge Eng.: Cambridge University Press, 1970.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s