There's No Such Thing as a Free Market

AlterNet / By Terrence McNally and Raj Patel
There's No Such Thing as a Free Market -- Just a Matter of Who Pays for It
Raj Patel argues that the corporate capture of government and our current financial crisis are the result of our bankrupt political system.
February 19, 2010


Raj Patel opens his new book, The Value of Nothing: How to Reshape Market Society and Redefine Democracy, with Oscar Wilde’s observation that “nowadays people know the price of everything and the value of nothing.” Patel shows how our faith in prices as a way of valuing the world is misplaced. Revealing the hidden ecological and social costs of a hamburger -- as much as $200 -- he asks how we came to have markets in the first place. Both the corporate capture of government and our current financial crisis, Patel argues, are a result of our bankrupt political system. Searching for solutions, Patel goes back to basics in both economics and politics.

Raj Patel has worked for the World Bank and WTO and been tear-gassed on four continents protesting against them. He is a visiting scholar at UC Berkeley’s Center for African Studies, a researcher at the School of Development Studies at the University of KwaZulu-Natal, a fellow at the Institute for Food and Development Policy (Food First) and the author of Stuffed and Starved. Though recently heralded as the Maitreya (or chosen one) by members of Share International, Patel protests he's just an ordinary bloke.

Terry McNally: You have worked for and protested against some of the same organizations. Tell us a bit about your path.

Raj Patel: I’m a child of imperialism, or as it’s more recently called, globalization. My family was scattered to the winds: my father was born in Fiji, my mother in Kenya, and I grew up in Britain. I’ve long been concerned about the links between different places, and how to fight poverty in those places. I was lucky enough, being born in a diaspora community, to be taken to the global south a great deal and to spend time staring poverty in the face.

When I was in the process of my graduate studies, there came an opportunity to work at the World Bank and the World Trade Organization. As an intern at the WTO, I delivered intelligence to social movements who were very interested in how that organization worked. At the World Bank, I was offered the opportunity to write a report that gave me access to classified internal documents looking at how they represented poverty and poor people to themselves.

Unfortunately I helped produce a puff piece that the World Bank then published under the title, "Voices of the Poor – Can Anyone Hear Us?" In it, the World Bank proclaimed quite loudly that it knew poor people very well and that some of its best friends were poor. That was obviously unacceptable, and I resigned soon after the professor who had originally hired me.

TM: Your experience at the World Bank reminds me of Nobel-winning economist Joseph Stiglitz, and even more specifically of ecological economist Herman Daly. When Daly was at the World Bank, they were producing a publication that included a depiction of the global economy. Daly suggested they put a frame around the economy to indicate the limits of nature. Others disagreed, and, after intense back and forth, the image was published without a frame. Daly protested that the economy does not exist in some abstract unbounded universe, and resigned soon after that.

RP: I am quite pleased to be part of a tradition of people who discover that the World Bank, however much it protests that it is interested in poverty and sustainability, turns out not to be. The fact that some pretty good people have run away from the World Bank in disgust does not mean that the people who remain are evil, but that they’re beholden to an ideology that they cannot see and they cannot change. The bankruptcy of that ideology is one of the starting points of The Value of Nothing.

TM: Could you say a bit about your earlier book, Stuffed and Starved?

RP: When I was at the Institute for Food and Development Policy in Oakland, California, also known as Food First, I wanted to write a book connecting the dots, to explain how it is that the United States has such epidemic levels of obesity, while there are globally epidemic levels of hunger. We now live in a world where there are a billion people who are overweight and a billion people who are starving.

For a while, of course, it was a revelation to point out that hunger happened in America, as well as obesity, but now the tragedy of that contradiction is even more magnified. In 2008 over 49 million went hungry in the United States, and at the same time, the United States was the most obese population on earth.

In Stuffed and Starved, I tried to explain how these two things are not accidental, but are actually the outcomes of a very complex system in which corporate power not only underpays labor -- particularly labor that produces food – but also sells us food that is systematically bad for us.

TM: You say "…that markets should know best is a relatively recent article of faith. It took a great deal of ideological and political work to make it part of government’s conventional wisdom.” How did this well-constructed belief in the market impact the food crisis and the financial crash of last year?

RP: Based on the idea that markets know best, government regulation and oversight was pretty systematically dismantled in the 1970s, 1980s, 1990s. That regulation had taken a wide range of forms, from protection for union organizing to banking regulation and oversight, from food grain reserves in the U.S. and elsewhere to the ability of people to organize and think about a role for government that was anything other than cutting taxes and letting the free market do its thing. These are all things that were lost when the ideology of "markets know best" triumphed.

The food crisis wasn’t really because of a shortage of food. There were odd things happening in the global food supply, and strange events that affected a few grain baskets here and there, but, in the main, the driving force behind a lot of the volatility in food markets was speculation. Capital flowed from speculating on oil prices into speculating on the price of food, and all of a sudden the price of rice went up by 30 percent in a single day.

TM: The price of rice went up 30 percent in one day?

RP: Some dodgy policies happened in Southeast Asia at the same time as global markets were incredibly tight and there was a lot of speculation. All of a sudden the interconnectedness of global markets in rice meant that the price jumped.

Food prices soared in 2008 for a variety of reasons, a lot to do with the interconnectedness of world markets. Locally sourced rice wasn’t able to be produced and released to the market in ways that were acceptable to everyone, so those food price rises led to protests.

Haiti is a perfect example of how market fundamentalism destroyed an economy. At the beginning of the 1980s Haiti grew the majority of its own rice. But people in Haiti wanted a left-wing government, and two U.S. presidents didn’t think that was a good idea. Presidents Reagan and Clinton negotiated for Haiti a structural adjustment loan from the World Bank and the International Monetary Fund. Haiti, a very indebted country, would be given money in order to pay off its debts, on the condition that it open its economy to the free-market-knows-best mentality.

The trouble is there is no free market. There’s no free market in food for sure. You have Haitian rice farmers who earn two dollars a day if they’re lucky, competing against U.S. rice farmers who get a billion dollars a year in subsidy. It’s not surprising that Haitian rice farmers first panic and try to produce more rice just to be able to survive, and then in the end, give up to become sweatshop workers in the city.

As a consequence, in 2008 there were vigorous protests around food. First of all, demanding the return of a democratically elected president, Jean Bertrand Aristide, deposed in an international coup in which the U.S. seems to be very heavily involved. But also demanding bags of subsidized rice that came from the U.S. labeled “gift of the people of the United States." That gives you some sense of how the markets have been politically enforced in places that didn’t want them, and how this market-knows-best mentality turns out to be a tool with which poorer people are subjugated to the needs of the most powerful.

TM: When you throw someone who can feed his family or a community that can feed themselves into the global marketplace…as long as they’re able to compete with subsidized produce from richer countries they’re okay, but if the market doesn’t work for them, even temporarily, they no longer have the life raft of their own food to feed them.

How did the free-market-knows-best influence the Wall Street bubble and the crash?

RP: You had a series of decisions around regulation, with the banks thinking that they ought to be able to regulate themselves. But they also had an ideology, the efficient market hypothesis: if you let markets reign freely, then all knowledge that is available will be brought to bear, and markets will be able to price assets correctly.

But there was a problem in the way compensation in Wall Street was structured, because if the market really prices everything exactly and correctly the minute that it hits the market, there’s no room for anyone to make any profit. There was a sort of inbuilt incentive for people to systematically ignore the risks in certain financial products and in certain kinds of trades.

If they could shuffle off that risk into the next quarter, they would be rewarded handsomely this quarter and their bonuses would be high. By basically gaming the system with regulations -- that they authored -- which encouraged a certain kind of playing fast and loose with the numbers, it was possible through some creative accounting for huge amounts of systematic risk to be kicked off into the future and ignored. And of course when the catastrophic risk was realized, everyone ran for the hills and started demanding public support.

We’re told that free markets are almost God-given things, that they fall from the sky, when, in fact, they are human made. Free markets very much depend on governments to pick them up when they fall.

TM: As we live with a shorter attention span, people think that what is has always been. You make clear that the notion of the market, particular ways of looking at human nature, and the whole idea of value and price were not ever so.

RP: The idea that price and value are different things goes all the way back to Aristotle. For them, chrematistics -- what does something cost in a market -- is basically a trivial question. And very different from economia, the business of provisioning and distributing resources within the household.

Although a price is the most superficial example of the economy at work, all the major economists, certainly Adam Smith and Karl Marx, knew very well that supply and demand, scarcity and availability, determined what something cost. As investigators, they were trying to figure out why something costs what it does. For Smith and for Marx, the question came down to labor.

Work and labor are somehow different from anything else that goes into a good, because labor transforms something from being a static inanimate part of nature into something that has much more value. This labor theory of value is why Adam Smith thought that the real value of anything was essentially the trouble that went into the making of it. Smith also had a much more sophisticated idea of how the economy was structured so that workers were systematically different from landowners who, in turn, were systematically different from merchants, who profited from the employment of laborers.

Karl Marx took that idea much further and systematized it much more thoughtfully into an explanation of why capitalism looks the way it does, and why modern capitalism is always going to externalize environmental costs while internalizing the profits.

Marx also made another point that I think is tremendously important, which is that modern capitalism doesn’t pay for household work. Modern capitalism doesn’t pay for the business of making new workers. Bringing up kids, educating them, and building new community won’t be paid for by capitalism because that’s a subsidy that capitalism needs in order to survive. Some U.N. researchers figured out that women’s unpaid work (in 1995) would cost $17 trillion if we were to pay market value -- pretty much half the total world output. Yet women own less than 10 percent of the world’s resources in developing countries and less than 10 percent of the land. And this is not an accident, it’s integral to the way the system works.

TM: Another very important notion you deal with is the commons. You point out that much of what we now see as a God-given economic infrastructure was made possible by the enclosure of the commons.

RP: There is a hidden history to this word. In general the way people know about the commons is through the tragedy of the commons, which says that when all of us have access to a resource that no one owns, we will be selfish and greedy and with eyes wide open use that resource up. The tragedy is that we will destroy the resource that we know we depend on, and leave ourselves with nothing. In 1968 this was published in the journal Science as a thought experiment by cell biologist Garret Hardin. If you look at the history of the commons, however, in the United Kingdom, in Italy, around the world, it turns out that people are pretty good at managing resources so that they don’t get destroyed and overrun.

TM: In Jared Diamond’s book Collapse, he looks at a number of societies. Some collapsed, some did not.

RP: The question of what causes collapse versus sustainability is something we’re increasingly interested in. The latest Nobel Prize in economics was won by a woman for the first time, Ellen Ostrum, in part for her work on the commons. What she found should shock us a little bit. While human beings are of course selfish and greedy, it turns out that we are also cooperative and altruistic and generous and capable of negotiating agreements that we in general abide by. And if we don’t abide by them, we also have regimes of punishment that make sure that fairness is maintained.

A recent study in the proceedings of the National Academy of Sciences looked at how different forest communities manage their forests. Forest communities that had enough forest to be able to use it sustainably, and that also had autonomy -- with neither the private sector nor the government involved -- did better. Not only did they have higher levels of welfare and development indicators, but they also sequestered more carbon. They managed the forest so that they were able to lock away carbon that benefits all of us. Despite being selfish and greedy, they were also good at living with the economic consequences of their actions and learning from them. And that’s something that markets don’t teach us how to do.

TM: You say that the joining of politics and economics, of government and the market has really distorted things over the last 100 years.

RP: Even someone like Adam Smith was very worried about the power of corporations or the very rich to dominate the poorest in society.

TM: In the evolution of the market’s power over everything else, you cite Eugene Fama and Gary Becker and Milton Friedman and Ayn Rand. Do such theoreticians actually make a major difference? Do they lead people somewhere or do they just map what people are already doing?

RP: I talk a lot in the book about how these ideologues for the free market, these apologists if you like, are useful in pushing forward a free market doctrine that suits the very powerful. I do think that someone like Ayn Rand is an important part of the story of the acceptability of free markets in the U.S. Of course, it’s a bit of both. On the one hand, particularly in the Cold War, the free marketers were able to insinuate their ideology into the war on communism, so the rich could say we’re part of the war on communism, tax us less. At the same time, the ideology makes certain courses of action thinkable. There’s a sort of back and forth between power and the ideologies that power produces.

Gary Becker, the Nobel Prize-winning economist, thinks that there should be a market in women -- that we should allow polygamy so that women who aren’t able to command a good price for themselves as a first wife can get a price as a second wife -- which is of course a preposterous idea.

TM: He didn’t believe it was preposterous, am I correct?

RP: He was serious. He proved with a few diagrams that you actually increase welfare for women when you allow polygamy.

Markets aren’t bad by themselves. There are some cultures that exist today where markets are associated with meeting people you don’t know and developing bonds of trust and generosity. It’s just that capitalist markets are premised on certain relations of exploitation that are good for just a handful of people, and bad for the rest of us and bad for the environment.

TM: How has this become a global problem when Europe has a tradition of social democracy with safety nets and a robust social contract?

RP: It’s become a global problem through the export of free market fundamentalism through organizations like the World Trade Organization and the World Bank, but also through direct U.S. economic policy and intervention. And British and European. The European Union is quite happy to have its safety nets at home, but in its development policy, it joins the U.S. in insisting that developing countries not be allowed the rights to invest in their own people or develop their own industries. In that sense Europe is two-faced about its development economics.

TM: The U.S. espouses things that it doesn’t actually do. Europe actually does them for itself, but prevents them for anyone else.

Could you say a bit more about price, value, externalities…and the hamburger?

RP: This is the example that captures people’s imaginations. We’re familiar with paying $4 for a double cheeseburger, but what we’re not familiar with is the way in which the corporation that produced that food has managed to squeeze out the hidden costs.

Some researchers in India asked if we were to value the rainforest that was destroyed so that cattle could be raised on that land, how much would it cost? We lose biodiversity, we lose the nutrient cycles of the rainforest, we lose carbon, we lose the oxygen being produced -- and we can impute a dollar value to that. It turns out that our $4 hamburger would cost $200. That’s just the environmental costs and doesn’t include the hidden costs of labor in the food.

In the U.S. our burgers come with tomatoes, and in the winter those tomatoes will likely come from Florida, and chances are that the people who are picking those tomatoes are getting paid pennies for a 48-pound bucket of tomatoes.

Since 1997 in the U.S. over 1,000 people have been freed from conditions of modern-day slavery under articles that constituted abolition. Workers were being paid pennies for a day’s work, and then forced to pay for things like showers. When you’re working with pesticides every day, you need a shower. Some people found it cheaper to wash their hands with bleach than to pay for a shower. That features in the price of a hamburger.

TM: I’ve talked with Ben Skinner and others about the magnitude of slavery in the world at this time, but that 1,000 people have been freed under U.S. antislavery laws is news to me.

RP: The Coalition of Immokalee Workers in Southern Florida say that 1,000 is just those the police have managed to liberate, and that the number who remain in slavery is much higher.

TM: That $200 also doesn’t include the health costs.

RP: These are just the costs that precede production. But the hamburger is part of a diet that is causing us to be massively overweight and very sick. One in three kids born in this country after 2004 will develop diabetes, one in two among minorities, and one in five of our health care dollars -- over $180 billion -- is already being spent treating people with diabetes.

The burger companies don’t have to foot that bill, we do. The debt that we owe developing countries from the way that we consume today is in the trillions of dollars, but even in this country, the way we eat today is a debt that never features in the price of food. I say that cheap food is in fact cheat food, because companies cheat their way out of paying the full cost.

TM: It isn’t just the food in this country, it’s the clothing, it’s the toys, it’s everything. If you are opting for cheap, someone is probably getting cheated.

Let’s get to your reasons for hope. There are some very radical activities going on among the Immokalee Farm Workers, the La Via Campesina, the Zapatistas, etc. I recently interviewed Rebecca Solnit about her book, Hope in the Dark, and your reasons for hope are very much the same.

RP: You began by quoting Dr. King, who described himself as a democratic socialist. Dr. King didn’t just say we need more regulation, he was actually engaged in the politics of practical change. Organizing the poor people’s campaign was a direct response to asking the questions: Why do we live in a world of poverty? Why does capitalism reign with such awesome power?

It’s important for us to realize that in the U.S. we don’t really live in a proper democracy. We live in a kind of complain-ocracy, where every two years we have the chance to boot out officials who have disappointed us and replace them with officials who have yet to disappoint us.

We don’t have the kind of thriving democracy that Athens did 2,400 years ago. I don’t want to live in 2,400-years-ago Athens, but I do think it’s interesting that in the birthplace of democracy, there were never any elections. Electoral politics has nothing to do with democracy. In Athens, governments were elected at random through a lottery. At the beginning of every year 6,000 people were chosen to become the government, and after that year they were disbanded and another 6,000 were chosen. People who did not want to be part of that governing procedure were called idiots.

There are communities today where that kind of democracy is taken very seriously. The Zapatistas in Southern Mexico are a good example. But you don’t have to go to Southern Mexico to find really exciting movements. La Via Campesina, an International peasant movement of 150 million, has members in the United States, including the Coalition of Immokalee Workers in Southern Florida and the National Family Farm Coalition.

What’s missing in our economy, they argue, is the right to have rights. If you’re rich in a free market, you can get great health care, you can travel, you can do whatever you like.

TM: All the freedom money can buy.

RP: But if you are poor in a market economy, then freedom is just another word for nothing you can afford. These movements want the right to have rights. They’re not asking for anything special, they just want rights and the capacity to demand them.

Movements like La Via Campesina say, “If we’re going to have rights, we need equality in power. We need a democracy where it’s possible for every voice to be counted." Within the fight for food sovereignty they call for an end to all forms of violence against women -- and that’s an amazing jump.

TM: …and they came up with that through a set of conversations bubbling up from the bottom. That’s very powerful.

RP: It is important to remember that these are peasants. In English the word peasant carries with it a certain pejorative connotation: "That guy doesn’t know what he’s talking about, he’s just a peasant."

They’re not anti-market, they just want social control of markets. They’re saying that if we’re serious about equality and power; if we’re serious about having real markets where real exchange can happen, then we need to confront inequality in power wherever it happens, from the heights of the World Trade Organization right down to the household where permanent inequality still exists under modern capitalism.

People didn’t sit down and read Marxist textbooks to figure this out. It’s not about finding the right revolutionary manual or reading the right chapter of Ayn Rand. This is born of direct experience, in a concrete attempt to solve real world problems.

TM: How do they do it? You write, for instance, that the Zapatistas do it slowly.

RP: In Stuffed and Starved I talk about slow food, a movement that started in Italy, of sitting down and really enjoying food. In the Zapatistas' case, I talk about slow politics -- the difficult, prolonged deliberation that leads to good decisions.

There are certain things that need to be done very quickly. If you’re sick, Zapatistas do not sit around and ponder what you have and the best way to reach you, they send an ambulance. But for a lot of the choices and decisions that we make today, they realize we need to take more time. We need discussion, we need to learn the art of deliberating and of having meetings and of disagreeing and of resolving our disagreements. One of the ways in which we are de-skilled as citizens is that we’re not really used to having civilized debates. We’re used to rowdy town halls where people adopt positions of one or the other political party -- as if there are only two opinions about any given issue -- and then hurl abuse at one another.

In Zapatista meetings, you have a long, really slow process of deliberation to get to what people believe to be the right answer, so that people can own a decision, and learn from the consequences if that decision isn’t correct.

TM: Someone recently described his politics to me as 'radical' -- not as in wild-eyed, but as in the Latin, where radical comes from the same word as 'root.' He was interested in getting to the roots of things.

RP: In our accelerated world and our accelerated politics where decisions need to be made instantly and there’s no room for reasoned debate, we never get to the roots of anything. We never get to the roots of the word radical.

We don’t have time for that, and we need to make time. It would be futile to expect our politicians in Washington to do that. But at a community level in the U.S. right now, particularly in the food movement but in many other movements as well, I’m seeing people asking root cause questions, just as Dr. King did. Asking tough questions and coming up with answers -- that to me is democracy at work, and it’s very hopeful.

TM: Where can people learn more? What is worth paying attention to, worth becoming involved with, and worth putting our hopes in?

RP: For me it’s food, an issue that concerns 49 million Americans. You can get involved pretty instantly, there’s already stuff going on in your community. At foodfirst.org, there’s a great deal of information about how to get to the root causes of hunger and how to fight it. Food Policy Councils are springing up around the country and around North America, nearly 100 of them now, that are asking these root cause questions.

But if you’re not interested in food, that’s okay, there’s something you’re passionate about, whether it’s health care or transitioning away from our unsustainable carbon world into something much better. If you’re interested in education or criminal justice or the prison system, there are people organizing in your community right now. All it takes is a few minutes of Web searching, or go to your local library because librarians are the gods of information -- there is no more noble profession. Ask around, people will know. Ask around in your church, in your local farmer’s market. Whatever movement you’re interested in, they’ll be able to hook you up.

There’s always a space in which you can make democracy flourish and it begins with you.