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.