Power and the Market

Steven Horwitz

That's the title of my Freeman column this morning (and yes, it's a play on Rothbard).  The topic is the reality of non-political forms of power and what they imply for classical liberal societies.

Moreover, to theorize that public power is a check on private power rather than its handmaiden ignores centuries of evidence of the role governments have played in serving the interests of the economically powerful.  As I have argued before, this is a feature not a bug of government intervention.  When John Kenneth Galbraith argued in the 1950s that government regulation could serve as a “countervailing power” against large corporations, he was either naïve or ignorant of the corporatist origins of much regulation already in existence.

The ultimate countervailing power is not the State but the combination of market competition and social activism.  In a free society unions can play a countervailing role as well, though not in partnership with the State.  Offering alternatives, organizing collectively, and using boycotts, ostracism, and other forms of social pressure are all ways of limiting power exercised problematically in the market

Comments

[Daniel Kuehn]

Would it be fair to say that the state without robust social activism is as lop-sided as the market without social activism, and that the state with social activism holds potential just as the market with social activism?

Contrary to popular belief in some circles, those who don't summarily dismiss government are not interested in simply handing everything over to "overlords".

Standard government failure concerns still apply to a state buffetted by social activism, of course - just as standard market failure concerns still apply to a market buffeted by social activism. No one need assume I'm "ignoring public choice" or anything like that.

[Lode Cossaer]

"Would it be fair to say that the state without robust social activism is as lop-sided as the market without social activism, and that the state with social activism holds potential just as the market with social activism?" <=

No.

The mechanisms to transmit preferences into 'policy' are completely different, even taking both of their 'failures' into account.

[Daniel Kuehn]

re: "The mechanisms to transmit preferences into 'policy' are completely different, even taking both of their 'failures' into account"

Certainly - sorry if I came across as suggesting they aren't different. I didn't intend to assert that at all.

[Lode Cossaer]

The reason why I disagree with your statement is because the mechanism functions differently. If you say that you have taken that into account, than I'm not sure how you can still stand by your statement.

[Daniel Kuehn]

Lode Cossaer -
Perhaps a little more specificity?

I probably should have said "is lop-sided too" rather than "is as lop-sided". Does that work? I never said anything to imply I think they work the same, so I'm not sure where you picked that up, so I'm really not sure how to respond to you.

[Tom Dougherty]

Steve provided examples of social activists reigning in excesses of markets and corporations (boycotts, ostracism). It seems to me that these forms of social activism try to put a check on markets without the use of government intervention. But when I think of someone described as a social activist, what comes to mind is someone who wants to use government power to deliver an outcome that the social activist finds desirable. So, when I think of a social activist, I don't think of someone who just wants to change society in some way, but someone who wants to change society in some way by using government power.

[Daniel J. D'Amico]

Steve, a great article as usual, but I really hate unions.

Who needs unions when there's yelp?

Why do we need collectivized social activism? Free market anti-capitalists, left libertarians, and bleeding heart libertarians often articulate these appreciations of non state / free market unions. But are they in part describing fictional entities? I agree unicorns are awesome, but they don't exist. And in a world where they could exist, we probably wouldn't need them and they might even do harm.

Yes, it is theoretically possible to have a union unsupported by state power, totally voluntary and collectively organized towards a common goal of increasing working conditions, wages or whatever. But what is the likelihood that such a group will be effective at reaching that goal compared to other channels of action?

To the extent that union members get value from solidarity, that value will cloud their ability to recognize the (potentially negative) influences that union actions have upon real outcomes. The hotter the girls in your union are, the more you continue to support it regardless of whether your working conditions improve. When you get enough people together motivated by zeal rather than results you have the same kind of power that your article is rightly concerned about.

Unions, even voluntary ones, seem comparably prone to constructivist errors as are central planners and democratic voting processes.

We don't need collectivized social activism but we do need coordinated social activism. What we need are institutions that coordinate social preferences in otherwise inarticulate-able ways - like prices do. Collective action organized by union committees etc. hasn't done this well in the past and I doubt it will in the future.

IMHO the union model is the wrong horse to back. Cool kids today don't join unions nor should they, they go online. Rogue advertising, coordinated shopping, user reviews, micro financing, social media and good old market competition have done in the past and are doing more today for lowering consumer prices, increasing product quality and promoting wages and working conditions than unions seem even capable of accomplishing.

Rather than providing a constrained and nuanced appreciation of unions for the sake of finding common ground with the left, let us identify the real mechanism of social change. Knowledge is power. Those systems that allow for the greatest distribution, communication, sharing, replication and coordination of knowledge best check the negative effects of power and best promote the extension of the division of labor.

A charitable reading of Rothbard - markets kick butt at the above and are probably the best known arena for developing such knowledge processes through long lasting and robustly applicable institutional forms.

[Steve Horwitz]

Point taken Danny D. I think there's still space for "collective action" but you're probably right that it's going to look a lot less centralized and intentional and more decentralized targeted at specific problems. Think of the reaction to the Jefferson Memorial stuff.

[Jake Roundtree]

"What we need are institutions that coordinate social preferences in otherwise inarticulate-able ways - like prices do."

>>>
What do you mean by that statement?

[Troy Camplin]

There is a difference between "collective action" and government action. To conflate the two is to make the same mistake as those who mistake government for society. Government is not society. It is not even remotely society. And government action is not collective action. It is the action of certain individuals in government, using legislation when possible, to advance their own interests under the guise of advancing the interests of their department. I would thus even make the distinction between the office and officeholders. Even if the office is created with good intentions and for altruistic purposes (to assume the best), you still have the knowledge problems and the problem of the worst getting to the top. Just because an office may be altruistic or well-intentioned in purpose, that does not mean it will actually be used that way by actual office holders. In fact, it rarely is. Both the knowledge problem and the worst getting to the top problem make it a hideously bad idea to concentrate power in government offices. It is best to distribute power as much as possible. Thus distributed, those who wish to do evil will be far more distributed and diluted. The good can thus overwhelm it -- not to mention the fact that spontaneous orders often transform bad intent to good outcomes. Centralized power structures tend to have the opposite effect.

[Daniel J. D'Amico]

Jake,

I mean patterns of coordinated behavior that produce and contribute to knowledge that would otherwise be inaccessible. Yelp and other online comment threads and reputation features are a great example. Prices provide calculation ability to producers. They know that people are willing to pay twice as much for certain goods over others for example. Various forms of internet commenting etc. tell producers that customers would like particular products and services and that particular numbers of people agree with them. They are not the same types of knowledge but they are similar processes of knowledge accumulation and knowledge sharing.

Forming a group, having a meeting, setting up committees, vetting discussions, taking votes - none do nearly the quantitative or tractable heavy lifting as these new innovations and they are infinitely cheaper, easier and more enjoyable.

[Cornelius]

I agree with practically every argument you make in your article, Dr. Horowitz. However, I am curious to know your opinion on anarchist and libertarian socialism, which views both the state and capitalism as evil.

[Steve Horwitz]

Cornelius:

I think people should be free to form their own socialist communities as long as they don't force me to join.

[Daniel J. D'Amico]

Steve,

Fun and relevant:

http://video.stumbleupon.com/#p=zp8zwbdpex

Dan