Flawed at the Roots

‘Left-wing ideas are ridiculous – Sinn Féin need to stop that’, I was told during the campaign for the last election. I am a proponent of socialist ideology and during the ongoing crisis more and more of the solutions are that of socialist persuasion – a single tier healthcare system, larger State intervention and necessary government spending. The truth is that socialism is the solution to the ever-growing inadequacies of the modern form of runaway capitalism.

Markets – that is what it is all about. The forces of supply and demand that so beautifully dictate price and output. The freer the market, the more efficient it is and the better off everyone becomes. The invisible hand guiding us towards economic paradise. That is what is preached. The study and evolution of economic theory has produced many different forms of market structure. First there is perfect competition – the model that paints a picture of unlimited, uninterrupted, and fair competition between as many firms necessary for as many customers as possible. It is here where all the rules of classical economics are followed. From this comes imperfect competition – an attempt to salvage whatever is left of perfect competition after removing some of the absurd assumptions it makes. But, less absurd assumptions does not rid a model of absurdity. And so, models of oligopolistic markets are then proposed – a more realistic model where a few firms dominate and often times collaborate to impede entry of new firms. This is a structure of dominance and eventual corruption. It is a structure that is dominating global markets today – think of Apple and Samsung, FaceBook and Amazon. Finally, there is monopoly, where one firm dominates the market. It charges what it wishes to maximise profit at the expense of anyone necessary.

These are the main capitalist market structures proposed by economic theory. However, there are still two very important points to be made. The first is that capitalist economics defines firms as both rational actors and profit maximisers, and the second is that it discourages government intervention and wants as little market regulation as possible. After all, the invisible hand guides everything itself. Let’s apply these points to the above structures:

What structure, according to capitalists, is the most efficient and desirable market structure? A perfectly competitive one, or as close to it as possible.

What do all firms seek to do? Maximise profit.

In what model does a firm maximise profit? It is not a competition. In fact, it is a monopolistic market structure.

Therefore, if all firms want to maximise profit and all firms act rationally, then every individual firm’s goal is to get as close to monopoly power as possible. They actively seek to reach a point where they can exploit consumers by charging the price that is most profitable. A point where they can hire and fire workers at will based on the amount of output that is most efficient for them to produce. Competition laws mean that these extremes do not often come to fruition. Nevertheless, the point remains: Capitalist economic theory claims that perfect competition is the best structure, but the very nature of that same theory means that firms will try to move as far away from perfect competition as they can.

This result is in plain sight as we see a vast amount of markets dominated by very few firms – the automobile industry, the technology industry, mobile network providers, and so on. Oligopolies are taking over the world. These are markets that are almost always undesirable not to mention that they are only a few firms away from becoming monopolies. The point is that modern market-based capitalist ideology is flawed at its roots: it seeks competition but it promotes dominance; it seeks freedom of business but it promotes inhibition; it seeks guidance from an invisible hand and is led in the wrong direction.

But there is another way.

Start by identifying the most basic needs of every individual – housing, health, education, for examples. These needs form rights which must be protected, and the only way to ensure that protection is to allow the State to become the main – and in some cases, the only – actor in the markets which cater to those needs. The housing and healthcare crises are evidence of this. The latest pandemic is evidence of this. Next, the flaw of the market must be identified, i.e. the belief of an invisible hand. The natural forces of supply and demand are supposed to guide the market to its optimal position. But the reality is that dominant firms decide what position the market takes. The truth is there is no invisible hand. And so, the government must be the one to push the market to a position of fairness and equality. This is done through strong and necessary intervention, through protection of the rights of workers, and through sufficient and appropriate funding. For example, imagine the government stopped insurance companies from using personal data to charge extortionate premiums. Imagine it made zero-hour contracts and other injustices to workers things of the past. Imagine it invested in all regions of the country to provide quality all-island broadband and other infrastructure to spark regional development. These are only modest examples of what the State’s role could be and still it is clear the positive effects even these actions could have if not for the roadblock of capitalism and laissez-faire. This must change. Finally, it has to be acknowledged that this large role for government must be accompanied with transparency and accountability.

This framework will truly guide markets toward the fair, co-operative and inclusive structure that perfect competition is supposed to represent. It will allow markets to serve the consumers as well as the firms. It will see a system which creates new wealth and distributes it to all.

That is socialism. And we need it. Stay safe.

le Eoin Kenny