The magic of markets turns out to be alchemy
Indian Prime Minister Manmohan Singh's assurance that the nation's economy will grow 9 per cent promptly saw the stock market surge to a new high. The prospect of growth and the creation of new markets upon which growth depends has produced, not for the first time, a heady elixir. It is market mania and underpinning it is the belief that markets are the solution to India's considerable problems.
In Britain, the recession has induced a gradual return to forms of state control. But, during a recent visit to my native Calcutta, I found people of all professions, castes and classes gambling on the stock market. A great leveller, the market also poses great risks.
The risk can be gauged by the impact of what former US president Ronald Reagan eulogised as 'the magic of the marketplace'. It turns out to be alchemy and it duped the greatest proponents of the marketisation of the world - the Anglo-Saxon world.
The doctrine of unregulated free markets undermined the British and American economies, leaving them in the grip of the deepest recession since the 1930s. The response to the crisis was to undo in a matter of weeks an economic system constructed over decades, though which still dominates their society. The replacement? Something approaching India's state-led economy.
Ironically, as societies in the grip of market mania learn the errors of their doctrine, India looks set to embrace it. Of course, markets are beneficial but the Anglo-Saxons mistook harnessing markets for becoming functionaries of markets. Correcting that confusion is contingent on developing a political system attuned to managing markets.
The history of market mania in the Anglo-Saxon world best explains the danger of subsuming a society to market principles. At the heart of the rise of the market is a fundamental gap between theory and application. The theory states that market logic ensures the efficient allocation of resources and meets essential needs.
Furthermore, the market is supposed to turn the vice of greed into an instrument of public good. In other words, the market mechanism converts personal consumerism, however conspicuous, into productive and innovative activity beneficial to the entire social spectrum.
Adam Smith, the high priest of market theory, explained the point by noting that 'it is not from the benevolence of the butcher that we expect our dinner, but from their regard to their own interest.' He drove home the idea by saying no one but a beggar chooses to depend on benevolence - and look where it got him! Self-interest, rather than benevolence, became the ideology governing the Anglo-Saxon world.
This ideology fuelled the rise of the market in Britain. Intertwined with this marketisation was the decline of the state and the freedoms and opportunities it ensured to citizens. The marketisation of society has not fashioned self-interest into a means of creating public good. Instead, it has restricted opportunities and freedoms to those who can afford them.
Yet, markets continue to be viewed as a panacea. Most striking is their deployment to solve social problems. However, instead of resolving them, these misguided ventures unleash new ills.
Markets are necessary but they can change our view of what to do, why we do it and how to do it. They presuppose certain ways of valuing goods, people and activities. The genius of the market is that it embodies a particularly invasive culture. Markets can taint what is good. This is why we have to inoculate ourselves against the perversions markets induce.
The means is to engage in a political debate about what we value and how to harness markets to serve those values. The difference is between having a market and becoming a market society.
