ECONOMICS - by Bob BrowningNews Weekly
More than self-interest needed for a functioning economy
, December 4, 1999
There is often a huge gulf between theory and practice. Nowhere is this more marked than in the expectations of human behaviour.
Bob Browning explains what this means for economic policy.
Economic rationalists like to remind us of Adam Smith's remark that we depend on the self-interest of the butcher and baker, not their good will, for our meat and bread.
Smith had a lot more to say than that, of course. But the economic rationalists are right - to an extent. If there is strong competition, then self-interest will induce many, perhaps most butchers and bakers to offer better meat and bread services at better prices.
But effective competition does not always exist, or exist everywhere. And perfect competition never exists anywhere, except in the minds of economic model-makers and utopian ideologues.
Even when competition exists, some butchers and bakers will find ways of competing other than providing the best products and service. Self-interest can lead to the public interest, but it can also lead to anti-social behaviour. We still count our change, watch the scales, and check our bills. We take advertisements, like politicians' promises, with a grain of salt.
When it comes to self-interest and competition among bigger fish than the butcher and baker, the public interest outcomes are a much more mixed bag. Newspapers, for example, can compete by paparazzi, sensationalism, shock-horror, jingoism, sexploitation and dumbing down.
The few big corporations that own the lion's share of the mainstream media can compete for markets like China by spiking any news that repressive regimes don't care to hear. They can compete in countries like Britain and Australia by giving government parties hell if they refuse to open up to foreign ownership or try to restrict the size of the slice corporations want of the media pie.
Athletes can compete by taking drugs. Cricketers by sledging. Bookies by bribes. Tennis players by tantrum. Doctors can compete by over-servicing. Health funds and hospital corporations can compete by contracting doctors to ration health care to patients.
Agri-business can compete by genetic manipulation without proper risk management or by using artificial cattle fodder topped up with sewerage and slaughter house waste. Cigarette makers can add more potent addictive ingredients to tempt the young to smoke. Manufacturers can take their factories offshore to where industrial safety regulation and trade unions are weak, taxes and wages low, and government officials have Swiss bank accounts.
Those few of us around the world lucky enough to live in societies whose institutions support law and morality feel more relaxed about self-interest and competition. But we feel more relaxed if we believe the butchers and bakers we deal with are law abiding and moral individuals. And we feel even more relaxed still if we believe their self-esteem is linked to their decency, social responsibility and pride of workmanship.
Societies vary in this respect. Traditions and institutions and laws make a difference. Morality tends to take a dive during police strikes. At least in the past, one could take one's eyes off one's suitcases at a Japanese railway station. You would be silly to do so in Sydney, and stupid to do so in Paris or Rome. As for Moscow - well, it doesn't much matter what you do. They will take your bags off you anyway. Laissez-faire, leave alone, applies to government regulation, but not to other people's suitcases.
Even in the best societies, with the best Competition and Consumer Councils, man's lot is still not an easy one. He is seldom totally off his guard. We still have to contend with lying, deception, obfuscation, false advertising, monopolistic bullying, cronyism, greed and countless other sins that flesh is sadly heir to.
In the worst societies and situations there is no depth below which man cannot, will not, and does not sink. We have only to think of Cambodia, Rwanda, Bosnia, Kosovo, East Timor and the numerous other places of recent tragic eruptions. Even the industrially-advanced, Christian society of Germany, the cultured land of Luther and Goethe, earlier this century suddenly produced the Holocaust. Mother Russia produced Stalin.
When we take into account the evil empires that man periodically creates, with their Gulags and killing fields - and we must - then Competition Policy and Competition and Consumer Councils seem pale rather ludicrous recipes in themselves for protecting man against himself, of building and preserving decent societies.
It sounds un-Christian, even anti-Christian to say that the utilitarian mechanism of calculated self-interest is the most reliable way to ensure the public interest.
We still need individual conscience and law. By conscience, we mean a system of self-evaluation based on internalised Christian or other civilised, humane values which are promoted and bolstered by supporting social institutions and custom.
Will enlightened self-interest produce just and humane societies and moral men?
Will free trade and market competition soon turn the Beijing regime into humane democrats, into respecters of individual citizens, of the Tibetans and other ethnic minorities?
Will enlightened self-interest convert Beijing from any more Tiananmens?
Will it stop them persecuting the Falun Gong and other religions?
Will it debrutalise the Indonesian military elite?
Or does enlightened self-interest require decent societies and decent people to exist in the first place before it can operate in the public interest?
Has free market capitalism failed in Russia because it cannot of itself produce a moral society? Or has it failed because free markets cannot function outside a moral social base?
Bolshevism has degraded Russian society beyond easy repair. Are self-interest and competition the right repairmen to call in to fix the Russian breakdown?
Karl Polanyi argued that markets were marvellous things and could greatly benefit man. But he thought that what he called 'market societies' were bad.
Market societies are those where a-moral, equity-blind market competition is left alone, free to carry out its creative destruction, to re-engineer societies according to its haphazard dynamics.
Self-interest is even less likely than Luke Skywalker and the Jedi to protect us from evil empires and build good ones.
Something closer to the full order of battle of man's civilising propensities is needed to have even a sporting chance of doing that.