Home > economics profession, Real-World Economics Review > Neoliberals do not know what markets look like

Neoliberals do not know what markets look like

from Merijn Knibbe

Exchange takes place without any specification of its institutional setting. We have consumers without humanity, firms without organizations,and even exchange without markets.
Ronald Coase

I love markets. I love businesses. My family background: the so called ‘Kleine luyden’, ‘Small people’ who had all kinds of business: farming, small scale real estate, groceries, transport, meat – you name it. I recall going to the vegetable auction, sitting in the back of a truck with my nephews, watching the auctioneer and coming back with loads of radishes, cabbages – you name it. This world has largely vanished.

Having children in the back of a truck will earn you a fine, transporting vegetables in the same truck is sub-standard hygiene and will earn you a fine, small groceries and farms are not efficient anymore.  None of the people mentioned above got rich, by the way. Comfortable: yes; rich: no. Well, that’s not entirely true. Some did strike it rich. Not because they worked hard and smart and owned a business – but because they owned land, near the sprawling city of Amsterdam. Right below the Amsterdam beltway for instance. No auctioneer there, by the way. The city just expropriates the land, pays a generous price, delays the plan so you can still use the land for free for many years – but there’s nothing which you can call a market. 

One of the things these businesses tought me is that there is no such thing as ‘General Equilibrium’. Often, people earn or loose money not because they work hard and smart to fulfill the needs of others – but just by sheer coincidence.

P.S. – is there some nostalgia in this article? Sure. But we do our shoppings at the Lidl, a kind of European Walmart (but cheaper). And not at the organic food store – can’t pay.

  1. merijnknibbe
    December 27, 2010 at 3:09 pm

    Oops, this was still a ‘draft’ on the ‘back office’ of the blog. I was working on it – then Peter wrote his article on Coase, which made this one redundant and I did not finish it. The whole idea was that firms know many shapes:

    * small ‘Mom and pop’ stores
    * agricultural cooperatives
    * government companies like the company which does such a marvelous job at delivering our drinking water (at 1,30 Euro per 1000 litres: cheap, high quality, high dependability, minimal transaction costs, absoluut minimal fuzz and advertising. To specialists: in my country every user has a watermeter (owned by the company), is charged according to use, there are no subsidized prices for agriculture and productivity increases show as lower prices, not as higher profits). And, important, with a long term perspective: some years ago water prices were increased to finance the rebuilding of the sewer system during the enxt decades. IT’S NOT ONLY PRICES WHICH REGULATE MARKETS, DIRECT INFORMATION ABOUT CUSTOMER NEEDS ALSO INFLUENCE THIS KIND OF COMPANIES. I’ve seen that so often, Austrian ‘Entrepreneurial discovery’ often takes place when there is a exchange of ideas between two people, not when there is an exchange of money and products between a customer and a supplier. ‘Are you able to deliver.to build …’? ‘Well, never thought about it, but I can give it a try’.
    * charities
    * societies (which deliver many highly valued services to households and household members)
    * (large) family owned firms (which in the long run, as far as I know, tend to do better than limited liability companies)
    * limited liability companies
    *….

    I can go on and on. But when we look at neo liberal advise, they only seem to know one kind of company: the limited liability company. Every organization (hospitals, schools, water suppliers,I can go on and on) has to act like the large scale limited liability share holder value maximizing company. Which is rather simple. When we look at nursing homes in the Netherlands, it turns out that small scale companies do, on average as well as it comes to the top and bottom 10%, so much better than the large scale ones – as the people working at the small scale organizations are not just ‘labor’ but, well, people who know the names and the lifes of the people in the homes (‘clients’, in the large scale ones, ‘numbers’ in the largests). It’s not just about the money, it’s about the work itself to. Didn’t Veblen call this ‘The instinct of workmanship’? “There are more things between buyers and suppliers, Horatio…’ is the lesson that neo-liberals with an urgent wish to re-engineer society should learn.

  2. December 27, 2010 at 9:23 pm

    It is quite simple to disregard the burgeoning bureaucratic system supported by the neoliberal philosophy by simply forming informal contracts for goods and services with people you know and trust.
    Indeed, if this had not been done throughout the ages, humanity would likely be extinct by now.

  3. Ken Zimmerman
    December 28, 2010 at 1:09 am

    Neoliberal economists are very clear about what markets don’t or shouldn’t have — government influence or regulation, outside designers, planning, and safety nets — but not so clear about what makes a market a market. B.J.(Red) McCombs is one of the founders of Clear Channel Communications, the conglomerate that owns literally hundreds of radio and other communications companies around the world and is now partnered with Fox Communications. I think McCombs’ views on the economy and markets are instructive here. I asked him directly why he got into he communications business. His reply (almost verbatim): I don’t give a damn about commnuications. What I care about is money. If US savings bonds had the highest return around I’d be the first one in line to purchase them. McCombs thinks about making money, not about markets. His success is measured in how much money he can make, not the openness or functionality of markets, whatever they are. Engaging in bidding, auctions, or trade, or even owning a business that can engage in these activities is of little interest to him. His sole and overridding concern is making money. Overall I think this is the stance from which almost all neoliberal economists begin their work. The results should not be a surprise. Markets that work and making money are not synonymous. In fact they are almost totally opposite things. For me this explains much of what has happened over the last 50 years or so. Money was always important to businesses but it was never (prior to the 1950s) the sole end result sought by a business or all businesses. Today I think it would be difficult to find a business, big or small that was not pursuing this single and sole result. “The love of money is the root of all evil” (1 Timothy 6:10, KJV). The evils visited upon us of late by this love certainly confirm the Bible’s wisdom here.

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