Market states

Binary thinking is always easy. It is also a trap, perhaps the most common. A moment’s reflection should tell us that human affairs cannot be analysed as simple antonyms: government versus markets, socialism versus laissez faire, monetarism versus Keynesianism. But the habit is hard to shake, perhaps because we inevitably tend to see things in terms of good and evil, even when it is not a moral subject.

“Why am I rabbiting on about this?” you ask. Because I notice that my comments about the market state are being interpreted as claims about the market versus the state. Binary thinking rules. That is not what is meant. It is the market STATE, to which I refer. A transition from a world determined by nations, to a world in which the market has been so internalised within the state, that the market rules. As the historian Philip Bobbitt argues, it has largely already happened.  I find his argument — and to make it clear he is not saying it is either a good or bad thing, just that it is the case — very persuasive. The Market State is already with us, and the crises of the last three years, and especially the crisis in Europe, demonstrate some of its weaknesses.

Now before I go on, a couple of cautions. I want to avoid the trap of nominalism (assuming that something is real because you have a name for it). Bobbitt’s naming of the Market state is brilliant and persuasive, but it is just a name. The dividing lines between the nation state and the market state are blurry. China is definitely a nation and so is the United States. Only Europe has tried to transcend nations by establishing a common market and obviously the region is in trouble. There is nothing inevitable about the end of nations and the emergence of market states; the transition may not happen, or rather may not continue.

To me, there is no doubt we are already there. Bobbitt argues that there are three types of market state: laissez faire (America), managerial (Europe) and mercantile (Japan).  China, he believes, is a combination of all three. These three types will contest, just as communism, democracy and fascism contested for control of the nation state. Democracy, by the way, will struggle in the market state because its organising principle one dollar, one unit of power, not one voter, on unit of power. But then, democracy always struggles.

We are now seeing some of the weaknesses of the market state. In the laissez faire version, the danger is the loss of the middle class. In the managerial version, the state’s desire to control comes head to head with the power of the markets, and the state in the end must lose. And in the mercantile version, the parasite is too dependent on the host, which means that it eventually suffers extreme fluctuations, the most obvious example being Japan (but also Germany, to revert to the world of nations briefly).

The market state has many unpleasant features (not that nation states were wonderful: the communist and fascist ones were savage and there was the odd World War to consider). Nevertheless, this new iteration of the state is intensely materialistic; money rules. This is seen at its worst in education, where the logic of the consumer market is being applied absurdly (educators must determine value, but instead there is an attempt to get students, consumers to determine value). The logic of the market state is hopelessly inadequate in health, where death and pain cannot be priced without creating some very unhealthy social consequences; ethically it should be a matter of allocating funds for socially beneficial ends, not a balance of supply and demand.

The market state is deeply flawed in privatised infrastructure, because the market does not think in decades and firms do not last decades. It cannot deal with areas like defence and law, which are exogenous, and it does not price environmental damage properly. The market state has little or no concept of civil society; indeed it has a pretty thin idea of society overall. If we are just consumers or investors then, virtually by definition, we have little fellow feeling. Consumers never worry about what happens to other consumers. Just individuals. Poor wealth distribution will inevitably create deep social problems, as is becoming increasingly obvious in the United States, which is heading for Latin American-style problems.

The greatest issue, however, is how the market Leviathan can be contained? It must be if there is to be a Market state. That is the problem facing Europe now. The European leaders have tried to negotiate with the Leviathan (allowing them to set up social safety nets, for instance). But the Leviathan was never going to accept. It is the Leviathan. Europe will surely lose, and the managerial version of the market state will probably disintegrate.

So this is the prognosis at the moment. Forget about discussions of Keynesianism versus monetarism. The rule is simple: governments cannot run deficits because at some point the Leviathan will devour them. That was the lesson learned by many developing countries, which now run surpluses to protect their currencies. We have a lot of reason in Australia to thank Costello and Howard for virtually removing government debt during the relatively good times. Except for America, because of the greenback’s power, governments cannot run much debt in this era of the market state.

The managerial market state is looking to be in deep trouble; the European project, which was the most aggressive transition beyond the nation state to the market state, is on the edge of collapsing. The mercantile state is also ailing. Japan is in a permanent hole and those parts of the Chinese economy that are mercantile are also likely to fall into trouble. I find a lot of George Friedman’s analysis of China just plain wrong — after all half China’s “exports” to America are shipments inside the same company — but he does point out that most of China is still very poor and so lacks the domestic markets to provide consumer demand.

America’s laissez faire version is starting to seem the best version, albeit with growing internal problems. But of course America has an ace up its sleeve in the fact that the greenback rules the world. That was what Europe also wanted to share in, but that aim seems to have failed.

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  1. david collyerMEMBER

    “Democracy, by the way, will struggle in the market state because its organising principle one dollar, one unit of power, not one voter, on unit of power. But then, democracy always struggles.”

    Sad but true. This central fact of our governance is embraced by every micro-capitalist and wannabe rich guy – who fail to do the maths.

    Think about it. Your half to two and a half mill of investable funds is CHICKEN**T compared to the wealth = influence of the 0.01% who skew the tax system to advantage them. Being part of the 10% or even the 1% does NOT give you entree to power.

    My strident advocacy of Land Value Tax is not to destroy aspiration or wealth or opportunity but to put a handbrake on supine, lazy capital that extracts from the economy yet enjoys all the influence genuine risk-takers need to achieve.

    And all those private monopolies are killing our country.

  2. I have a simple question: if no government can run a deficit any longer, where is the thing we choose to call money to come from? And why would we assume that most governments can in the long run, actually choose whether their budget position is in deficit or surplus? In Europe, the atttempt to reduce the national deficit and push the budget towards or into surplus is failing catastrophically, both failing to eliminate the deficit and also worsening social hardship in an endless downward spiral. Since my understanding is that it is largely the private sector not the government chooses the size of the deficit through it’s collective spending and saving decisions, you appear to paint a bleak picture of an inevitable steady break down of modern civillization as we know it.

  3. SON,
    Excellent expansion on last week. It has me thinking.

    I question your assumption that the markets have control and that power resides in capital. At any time any company can choose to go bankrupt and any country can choose to default so the power resides with the leaders and they choose whose advice to listen to.

    The other comment I would like to add is, just maybe, you see a conspiracy from capital holders when there is none. What you see as a coordinated attack on European governments may just be a collective action of a whole bunch of people worried about getting their capital back.

    So is what you say just a collective projection or manipulation by those in power or, who want to be in power? I am beginning to suspect it is (i.e. never let a crisis go to waste). I know for a fact the Venezuela has sent at least one academic back to Australia to agitate in the OWS movement.

    For me it has to come back to what I personally experience. As a businessman running an SME I have learnt to except the rules set down by State and Federal governments no matter how stupid or bureaucratic as they have the power.

    • I know for a fact the Venezuela has sent at least one academic back to Australia to agitate in the OWS movement.

      Just curious, how exactly do you know that? Are you suggesting that OWS is a communist plot fanned by Chavez in the aim to, what, overtake America? Bring down the banks to break the communist beast?

      • No Karan,
        I know the person. And yes I suspect all subversives are trying to shape OWS for their own political ends but I hope level heads prevail.


    “The European Commission is seeking far tighter control of national budgets to combat the euro zone’s debt crisis, a senior official said on Friday, as the ECB’s chief urged rapid action on a euro zone fund for rescuing countries in trouble.

    With the crisis set to topple a fifth euro zone government this weekend, the likely next Spanish prime minister appealed to financial markets for breathing space as he begins tackling his nation’s problems – something they may not give him.

    In Berlin, Chancellor Angela Merkel made clear she favored a step-by-step approach to tackling a crisis that is spreading to large countries at the heart of the euro project such as Italy, Spain and possibly even France.

    One element of Merkel’s approach is to keep the pressure on euro zone budget sinners to get their finances in order.

    A suggestion of how this could be institutionalized in the medium term came from Brussels. The senior euro zone official said the Commission would next week propose tough monitoring of national economies and budgets, which could eventually lead to some form of common bonds backed by the bloc as a whole.”

    I’m not sure how this relates to the posting today, but it sure has a lot to do with democracy, bureaucracy and market failure.

  5. Learner, No, I do not see a conspiracy in the sense you mean it (although traders constantly conspire, of course). It is rather an institutional change, a change in the way the state is structured, with the markets positioned more at the centre. I think that is a simple statement of fact, although the way the market is placed at the centre varies in Europe, the US and Japan, as explained. We are past the moment of choosing, it has already happened, and we must deal with what it means. One point I am trying to make is that it has many weaknesses as well as strengths and some of those are now appearing. The strengths, by the way, are endlessly trumpeted by the neo-liberals: more innovation, higher efficiency, giving business freedom gives ordinary people freedom to live their lives and so on. That is all correct, and the reason why the Market state has risen to its current position. The greatest danger is not business being freed. It is finance being freed to do what it wants. Mainly because finance IS rules, so allowing finance to set the rules runs the risk of the rules that underpin the whole system being placed in peril. Which is exactly what we are now seeing.

  6. Excelent SON, the second last sentance is the whole problem. I 100% agree with you on that. You keep me thinking! Thanks.

  7. Cheers for commencing with the obligatory pomposity; I’m sure it must get very irksome facing a constant barrage of binary thinking from your idiot readers.

    You are trying to wriggle out of what was a very silly argument, namely that the preponderance of the market in Europe is to blame for its sovereign debt crisis cum societal Armageddon. Your point was quite unambiguous, to wit, “In the market state, financial pseudo-logic rules. The demos and the polity must bend to the markets’ will. Return on investment trumps democracy, civil society, social imperatives. That is precisely what we are seeing occurring in Europe right now.” Demos and the polity vs the will of the markets. Sounds pretty binary to me.

    It is also wrong. What we are seeing in Europe is just the collective recognition of how unsustainable certain European countries’ debt accumulation has become. It is true that thus far too much emphasis has been placed on protecting bondholders from losses. But this is not because the market has come to dominate nation states. It is because certain nation states wish to protect their own interests at the expense of others, that is, French and German politicians would rather that French and German banks weren’t forced to take heavy losses on poor investments. Nation states behaving in this manner is not a new paradigm.

    • Lucius,
      I will support SON’s view here. You surly must see the market exerting power as well and that current rules need revision?

      • No, I don’t see this as ‘the market’ exerting power, merely rational investors exerting the right to offload assets which have become too risky. What would you suggest in terms of revised rules? Would you make it illegal to sell sovereign debt in the secondary market? Who would then be stupid enough to lend European sovereigns the money needed to sate their voracious appetites for deficit spending?

        • Two governments have fallen so far. Is that not market power? With the Germans insisting they follow bankers rules causing death and you think the market(finance) has no power? Even after Greeks are setting themselves on fire because they dont see any way out and you dont think the rules need changing? Then I wish you well in your world where all that matters is money.
          Ok so they stuffed up. Might I suggest there is a thing called forgivness and that a way can be found to solve the problems AND leave them with some dignity and asperations for their own future.

    • You seem to be mostly looking to pick a fight, but what is being argued by SON does not really contradict your own superficial analysis.

  8. I’m with you, monsieur and learner. Lucius is not providing a counter to the argument, he is rather finding a non-existent sub text (although in his own terms he is quite right). In any event, I suppose it’s a good thing that, just when I was feeling good about being Pascal, I metamorphosed into Dan Brown and then ended being just plain pompous (I must say, “Blaise” has to be one of the best first names ever).