Monday, August 24, 2009

The Debilitating Myth of the 'Free Market' Alternative

Published on Monday, August 24, 2009 by

The Debilitating Myth of the 'Free Market' Alternative

by Robert Freeman

When choosing a pet, do you prefer unicorns or bunnies?  I prefer unicorns because, though bunnies are undeniably snuggly, unicorns have a much better color.  That lustrous pink fur beats out dull brown every time.  And if you can get one with wings — well, how can floppy ears compete with that?  It isn’t even close, is it?

This is something like what the healthcare debate is about.  It’s not about real alternatives.  Rather, it’s about the choice between a realistic alternative that can actually extend coverage while lowering costs — the public option — and a fantasy: the “free market” option.

And health care is only the most readily available of industries that illustrate our fatal fetishistic fixation with the “free market” myth.  Our thrall to that myth makes it impossible to have a rational debate about almost any economic issue.  For vast swaths of the U.S. and global economies bear as much resemblance to “free markets” as do unicorns to real pets.

There is, for example, no free market in health care.  Most markets for health insurance in the U.S. are dominated by one or two players.  They easily collude to keep prices high, choices low, payouts at a minimum, and new competitors from entering.  This is exactly what both common sense and economic theory would predict when few firms dominate a market.  Economists call it “oligopoly.”

Hospitals operate as oligopolists as well.  I live in a small town in California.  It doesn’t matter to me that there are many thousands of hospitals across the country.  The “relevant” market for my health care needs extends only a few miles.  For most people in America, there are at most two “competitors” in the hospital delivery business, if that.  This is not a competitive market.  The lack of true choice and the vendors’ incentives and ability to collude, make a mockery of the idea of “free markets.”

Or consider the pharmaceutical industry.  Though there are many firms, the vast majority of the prescriptions, sales, R&D, and profits are controlled by very few companies.  In many critical drugs, because of our patent laws, there is only one provider.  And George W. Bush passed a $700 billion health care law that specifically forbade the U.S. government from using its buying power to secure lower drugs prices for government purchases.  So much for the rigor of competition.

There is simply no effective competition in these markets and the results show it.  The U.S. spends twice per capita what other industrial nations spend on health care with inferior outcomes.  Adam Smith, the founder of modern economics, foretold this when, in 1776, he wrote in The Wealth of Nations, “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”

So what is the point in even arguing about “free market” alternatives?  It is like arguing for unicorns as pets.  It is fantasy.  When raised to a matter of policy prescription, it is worse.  It is social psychosis.

The fact of such social psychosis is not an accident either, and it, too, derives from the same narrow ownership and control of a vital industry.  Only thirty years ago, the media industry contained over 50 independent companies delivering television, radio, newspapers, and magazines.  Today, there are five giant conglomerates that control more that 80% of all the media sales in the country.

These media conglomerates are owned by a very small, very wealthy elite whose interests lie not in promoting democracy in political markets or competition in economic ones, but precisely in preventing them.  Their aim is to divert attention from the staggering concentration of wealth at the top of the economy and the steady impoverishment of all the rest.  They tout the sham rituals of democracy such as town hall meetings precisely to disguise the takeover of real government by large corporate interests.  Meanwhile, the constitutional protections of civil liberties for the people are quietly, slowly, relentlessly dismantled.

The power and collusion of the media oligopoly were never better illustrated than in the run-up to the Iraq war. We now know that all of the putative justifications for that war were false.  None of that mattered.  The neo-conservative political elite and their wealthy capitalist masters wanted a war so they manufactured one with the help of their hirelings in the mainstream media.  Truth had nothing to do with it.  Indeed, alternative voices, those that actually spoke the truth, were ruthlessly, viciously mocked and suppressed.

The entire country was frog-marched into a nakedly illegal colonialist takeover of a sovereign country that had not attacked the U.S., had not threatened to attack the U.S., had no interest in attacking the U.S., and had no capacity to attack the U.S.

Such is the power of controlling one of the most influential industries in the world, that you can, at will, manufacture a war that will expend trillions of dollars, raise the price of oil, and increase government deficits — all to your benefit.  Or, in the case of health care, that can elevate moronic screamers to the level of cultural prophets or anoint six senators representing 3% of the country to prevent real competition in markets that you also control.

This narrow control of critical markets extends far beyond just the health care and media industries.  It applies to industries across the entire economic spectrum.

There are only a handful of companies selling soda pop.  There is essentially only one company selling desktop operating systems.  Two companies sell more than 90% of all batteries.  Three companies sell over 80% of the beer, cigarettes, and breakfast cereals consumed nationally.  Only two companies in the world sell large airplanes for commercial travel.  Only two companies make the microprocessors that power PCs or the switches that power national-scale telephone networks.

In watches and clocks, railroad engines, jet engines, integrated oil production, sporting goods, musical instruments, motorcycles, man-made fibers, tobacco, music, wireless phones, chemicals, vitamins, industrial process control machinery, satellites, pharmaceuticals, networking equipment, and many other industries, fewer than six firms control virtually all of the entire world’s production!

Such levels of “industrial concentration,” as it is called, have never existed before in the history of the world.  It reflects the consolidation of the world’s wealth into the hands of a very small plutocratic elite which manage the world’s commerce among themselves, for themselves.  And this concentration is growing rapidly.  This is part of what the recent trend toward “globalization” is all about.

The big players in major countries have “gone global” by buying up or shutting down smaller players in other countries.  In 1973, $75 billion was spent by international companies buying up other companies that competed against them in foreign markets.  By 1993, that figure had soared to $500 billion and by 1999 had risen still another five-fold, to $2.4 trillion.  It continues to increase still today, creating a global marketplace in which more and more industries are dominated by fewer and fewer larger and larger companies.

The result is an extraordinary transfer of wealth and income from consumers and the middle class to monopoly producers and their owners.  In 2007, the top 1% of the U.S. population owned 60% of all business assets.  Meanwhile, the bottom 50% of the population owned a mere 2.5% of such assets.  The bottom 40% owned nothing.  U.S. income distribution has become more unequal than at any time since 1928, just before the Great Depression.  In the ten years between 1996 and 2006 two thirds of all the growth in the entire U.S. economy went to the top 1% of income earners.

This is far more akin to a feudal world than it is to "free market" capitalism.  In this, the real world, a very few ultra-rich families — think of the Bourbons, the Tudors, or the Hapsburgs — own everything, including the government, and everybody else owns nothing, save the labor they must render to their wealthy overlords in exchange for the right to live.

This has profound implications for the efficiency of the economy.  There is simply not enough purchasing power in the hands of consumers to clear markets of goods.  In the past three decades, this shortfall in demand has been compensated for by the government running massive budget deficits.  The national debt has grown 10-fold in the past 30 years and is forecast to double again in the next ten.  The burden of paying for that debt will enslave working Americans for generations to come, effectively, forever.

And as much as all of this is a matter of economic concern, it has grave implications for the viability, indeed, the survival of democracy.  When extreme size becomes extreme wealth, and when global economic power is exercised as preponderant national political power, how do we insure the survival of democracy?

Democracy depends on “one person, one vote”.  The motto for monopoly capitalism might well be, “One dollar, one vote.”  The two institutions — democracy and monopoly capitalism — are incompatible.   The one will inevitably destroy the other.   This is what Supreme Court justice Louis Brandeis meant when he wrote, “We can either have great concentrations of wealth or we can have democracy.  But we cannot have both.”

Large corporations are able to exercise extraordinary political influence through campaign contributions, lobbying, and control of the media.  By these means, they are able to have legislation enacted that favors themselves over the public: trillions of dollars sluiced to themselves through “bailouts;” guarantees against having to actually compete; differential tax rates on capital versus labor; environmental regulations that go un-enforced; etc.  This, of course, only further accelerates the concentration of private wealth and political power into narrow hands with the consequent further erosion of democracy.

How do we balance the democratic rights of individual citizens and the economic rights of small consumers when political and economic giants stride the landscape, concerned only with their own self-aggrandizement and almost inevitably hostile to the interests of the larger public?

In the case of an oligopolized media fomenting ignorance, hatred, and resentment in the place of knowledge, discourse, and deliberation, how can we even know what we need to know to operate a civilized country?  There can be neither informed consumer choice in economic affairs nor consent of the governed in political. And that is precisely the intent.

Since the answer to these questions will effectively decide the future of democracy, it may well be the most important economic policy question facing America today.  Of course, Americans love everything free:  land of the free, home of the brave; let freedom ring; live free or die; buy one get one free.  That’s why it’s so hard to shake the illusion of free markets:  we’ve centuries of indoctrination into the idea of their existence as synonymous with our own.  Myths die hard, the more so, those at the heart of our cultural identity.

But we expect children to grow up, to stop believing in unicorns.  We need to hold the same standard for ourselves as citizen-adults.  We should use the chimera of “free markets” in health care to keep the spotlight on all such industrial concentration.  It is not glamorous or sexy, like unicorns, but it is ever so much more real and ever so much more at the heart of our nation’s survival.

Robert Freeman writes on history, economics and education. He can be reached at [1].

Donations can be sent to the Baltimore Nonviolence Center, 325 E. 25th St., Baltimore, MD 21218.  Ph: 410-366-1637; Email: mobuszewski [at]


"The master class has always declared the wars; the subject class has always fought the battles. The master class has had all to gain and nothing to lose, while the subject class has had nothing to gain and everything to lose--especially their lives." Eugene Victor Debs


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