Pandemic lessons. No. 1: The death of the “self-regulating market” myth

by | Sep 16, 2020 | Experts, Finance | 0 comments

The myth of the self-regulating market is attributed to Adam Smith in 17761. England was the birthplace of a technological revolution that increased its productivity dramatically, reduced transport costs and created enormous financial and goods surpluses.  England, which had previously defended the protection of its national market from the other European powers, embraced the “free market” and “self-regulation”. From its position of being able to buy more than other countries on the international market, of being able to sell what others lacked, and of having the fattest wallet for lending money, it established its myth. It exercised its dominant position putting pressure on the European colonies in the world and its direct competitors to make them open their borders, abandon protectionism and follow its civilising economic policies: the free and self-regulating market.

As a result of the First World War and the Second World War, England fell into decline, and the once extremely protectionist United States of America emerged as a world power. The latter embraced the free market, combated the protectionism of other countries and subordinated it through commercial, credit and military means, and also cultivated in its elite universities the myth of the free and self-regulating market.

And today?

The myth of the Anglo-Saxon bourgeois elites is now transferred as a legacy to other flagship countries, this time in Asia, where the centre of the new technological revolution is located, with the highest production of patents, most of the world’s multimillionaire companies, and the highest and most sustained global economic growth rates. Today, China defends the international free market against Anglo-Saxon protectionism, and uses its financial surpluses to acquire natural resources everywhere, to connect the continents to its new “silk route” and buy large companies and banks all over the world, in particular in the shaky centre of global capitalism: the USA and Europe.

However, the Myth, which re-emerges over and over again, as a torch that is passed to the fastest runner in the race, is no longer the same; it appears more sincere: Liberalism outwards, strong intervention from within. China is the self-confessed caricature of what always maintained the myth of the free market: it was never free, it was always supported by the State, it lived off the imperial power, off advantageous commercial agreements, it was based on the primacy of the national currency in global transactions, it expanded, defended and enforced it with weapons.

Essential State intervention

The pandemic makes us more sincere, exacerbates all the basic characteristics of a “normality” that lays bare its foundations. The State comes openly and massively to the rescue of the market and it may be concluded that the latter is neither self-regulating nor self-controlled, and does not produce what society needs spontaneously.  There is no such thing as a “market order”. It is true that, at least since the 1970s, the State has worked for the financial sector, which acts as an intermediary for all activities in the real economy: in the primary, productive, transport, commercial and administrative sectors.

No sector escapes from “working for banks”2. In addition to privatising almost all profitable companies, the principle of financial intermediation even encompasses social security. The health system and pensions are the cream of financialisation, alongside construction, infrastructures, insurance, food control and the mining and energy markets.  Neither culture, nor social policies, even those designed to relieve poverty, escape from the parasitic, costly and unnecessary intermediation, which it has been agreed to describe as “financialised capitalism3. Nature, work, knowledge, subjectivity, art and even time are colonised by financial intermediation, which obtains income from each creative, productive and consumption process.

The ever-emerging self-defence of society

One of the main dilemmas of the pandemic is whether, on the one hand, the increase in the rentier, parasitic, useless power of financial intermediation will subject the State to an even greater extent, if possible, to the economy sector and families, or whether on the other hand social and political pressure will manage to regain control of the currency, credit and savings in order to support job creation, the fulfilment of the population’s most pressing needs, as well as the defence of riches and public goods.  ‘You can only get away with it for so long’. Millions are suffering and will suffer even more from the consequences of the pandemic, hundreds of thousands, more than before, will get angry when they see that the emperor has no clothes. The State works for financial intermediation because it is the State of rentier and speculative accumulation. Will society be capable of seizing power from the financial sector and investing money in a fairer and more equitable society, which stops the orgy of the destruction of nature and undertakes a rapid transition of the energy pattern?

Facultad de Ciencias Económicas, Universidad Nacional de Colombia

Facultad de Medicina, Universidad Nacional de Colombia

1 Smith, Adam, (1776), La riqueza de las naciones. Alianza editorial, 1994, Madrid

2 Villabona, Jairo Orlando, Un país trabajando para los bancos, (2015), Facultad de Ciencias Económicas, Universidad Nacional de Colombia, Bogotá

3 Lapavitsas, Costas, (2012), El capitalismo financiarizado, expansión y crisis, Editorial MAIA, Madrid

This article is a translation of the original version in Spanish


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