What Markets Are Good For vs What Markets Are Not Good For

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Discussion

Sam Bliss and Megan Egler [1]:


Markets are of Limited Value

"Moreover, markets rarely align with ecological economics' goals. In this section, we first enumerate several categories of goods and services for which markets fail to organize allocation justly, sustainably, efficiently, or in ways that respect value pluralism. Then we acknowledge the advantages of markets—satisfying tastes, coordinating complexity, and transacting across difference and distance. Lastly, we show the ways in which all markets contradict justice, sustainability, and pluralism."


What Markets are Not Good For

Even formalist economists, who tend to like markets more than most do, admit that markets only function for goods and services that are rival and excludable (Mankiw, 2018; Samuelson, 1954). Yet within that realm, too, markets can create problems when the commodities traded are not produced for sale, meet basic needs, or have cultural importance. Here we explain why markets are not suitable for these types of things. Going forward, we use the term entities as a shorthand for goods, services, and resources.


Non-Rival Entities

Markets make no sense for things that one can use without diminishing them for others. Nobody but the profiteer would be made better off by charging an entrance fee to view a sunset, were that feasible. Knowledge in fact gets more valuable as more people access and interact with it. Information is anti-rival. Not only does it not get used up or worn out, it can actually improve with use (Kubiszewski et al., 2010). All the media on the internet, for example, can serve society best when it is freely available to everybody. Market allocation limits the benefits everybody receives even from rival goods if they provide non-rival public benefits, like the viral protection offered by face masks in a pandemic. Non-market institutions might better allocate goods that can benefit many people at once, such as by rewarding good ideas without limiting access to information.


Non-Excludable Entities

Markets encourage the degradation of resources that anyone can exploit. Fishers benefit individually from each fish they catch while everybody bears the cost of depleted fish stocks. If one can sell fish for money, they can continue to benefit beyond the limits of what they can consume with family and share with community, thus increasing pressure on fish populations. This “tragedy of the open-access resource” can occur whenever people stand to gain from overharvesting living beings, polluting the environment, or otherwise diminishing things that everyone relies on. Collectives and governments can make market fisheries sustainable by setting rules about who can take how much (Ostrom, 2010, Ostrom, 1990). Excludability is thus a question of enforcement. Even a sunset is excludable with enough policing power to lock non-paying people in rooms without west-facing windows. Markets cannot exist unless an authority enforces property rights with violence or the threat of violence.3 Non-market institutions might govern common resources with less coercion.


Fictitious Commodities

Markets cause harm when used to allocate things that were not produced for them. Sunsets were not made to be sold. Neither is land, labor, or money. Polanyi (1944) called these “fictitious commodities” and argued that governing them entirely with markets would destroy society and nature because human beings and ecosystems have needs that the market system cannot account for. For instance, labor markets do not care that people need income to pay for market shelter and food, much less that they need meaningful, dignified work in humane conditions (Yeoman, 2014). Thus people and non-human nature fight back against full subjection to markets (Block, 2008). Yet many efforts to govern common resources involve making new fictitious markets for ecosystem services or the right to harvest organisms like fish (Farley et al., 2015; Tietenberg and Lewis, 2015), thus reducing these living beings to their quantifiable characteristics that humans find useful. Non-market institutions might better recognize and meet the interdependent, incommensurable needs of beings that were not made for sale.


Essential Entities

Markets cannot fairly distribute necessities because they send goods toward money, not need. Some people cannot afford to meet their basic nutritional needs while others pay to overeat, throw food away, and direct edible crops to livestock and biofuel production. Markets for healthcare, childcare, shelter, water, energy, and ecosystem services similarly create want amid waste (Farley et al., 2015). Markets for human organs and blood rightly provoke outrage (Hansmann, 1989; Titmuss, 1971). When a good is essential, the price mechanism fails; a price increase might deprive the poor of their basic needs but will not necessarily induce the rich to consume less. Moreover, markets for everyday essentials might hardly exist without the fictitious commodification of things that people do not produce for sale. As explained in Section 2.1, people produce everyday rival, excludable goods like food for sale almost exclusively in societies where labor and land are sold in markets.4 Non-market institutions might better ensure everyone's needs are met.


Culturally Important Entities

Markets, by expressing worth in monetary terms, demean the non-instrumental values that make certain entities sacred or relationships precious. Some feminists oppose prostitution and pornography partly for this reason (and not just for the violence that frequently accompanies such markets; Whisnant and Stark, 2004). Anarchist punks see selling music as selling out (Gosling, 2004). Indigenous communities sometimes refuse to sell spiritual artifacts (Kimmerer, 2014; Paper, 1988). Your grandmother might never think to sell her hand-knit sweaters. Buying friendship might not be possible. One can imagine that people would engage in much more non-market production and distribution if they did not need money to purchase essential resources. Non-market institutions might better honor the weakly comparable values of beings and relationships that support surviving and thriving.

We have argued that markets are not adequate institutions for governing the production or allocation of information, foraged goods, land, labor, ecosystem services, food, shelter, healthcare, sacred stuff, cherished relationships, or the categories to which these things belong. Markets also do not work as theorized when there are transaction costs, impacts on third parties, unequal power relations, or imperfect or asymmetrical access to information—things that are virtually always present (Coase, 1937; Kapp, 1950; Bowles, 1991). Where possible, regulated markets or fictitious markets are proposed to remedy these efficiency issues. But here, too, non-market institutions might be desirable if they better serve justice and sustainability, which ecological economists prioritize over efficiency (Daly and Farley, 2004).


What Markets are Good For

Are there any cases where markets are okay for organizing production and exchange? There would seem to be few important members of the class of rival, excludable, non-fictitious, non-essential, profane goods for which markets are appropriate according to Section 2.2.1. If markets are only good for television sets, roller skates, and massages, then they are hardly worthy of ecological economists' attention except to document and resist the suffering they cause when applied elsewhere. But markets do offer some benefits, which may in some cases outweigh the disadvantages that make them generally inappropriate for categories like essential or non-excludable resources.

Markets are good for satisfying subjective desires, since they direct resources toward those willing to pay for them (Mankiw, 2018). In conditions of economic inequality, though, they fulfill the fantasies of the rich while neglecting the needs of the poor. Still, markets are probably unmatched for gratifying individual tastes.

Markets are good for coordinating complex economies because of this same mechanism. Ecological economists write, “Many of the basic goods that serve everyday needs are produced through multi-level, spatially fragmented industrial processes, which cannot be controlled within bioregions or organized through mutual voluntary contracts. [Markets] help things by simplifying exchange and reducing the time spent in constant deliberations” (Kallis et al., 2013, p. 101). Price signals serve well to transmit information about supply and demand through decentralized networks (Daly and Farley, 2004). Much information about the conditions and effects of production is lost along the way (Princen, 1997), and there are strong arguments in favor of a less complex economy (Alexander, 2013; D'Alisa et al., 2014), but intricate products like our laptop computers would be challenging to make without markets.

Relatedly, markets are good for enabling transfers across cultural difference and physical distance, since they require so little mutual interpretation. People who do not speak the same language can trade if both parties understand how markets work. And it seems intuitive that the interdependence of trade would reduce the risk of violent conflict between groups, though models and history suggest that when many groups trade with one another, as in a globalized economy, the probability of war can actually increase because the parties are interconnected through competition but not necessarily reliant on specific others (Martin et al., 2008). Moreover, communistic sharing and reciprocal gifting strengthen social bonds in ways market transactions do not (Bowles, 1991; Jaeggi and Van Schaik, 2011; Neely et al., 2014). But buying and selling can work where non-market transfers are not possible.

To review: markets are good for satisfying tastes but not needs. They are good for transmitting some information but not allocating it to everyone. They are good for creating connections but not strengthening them. Thus, as long as society has strong non-market institutions for meeting everybody's needs, defending the environment, ensuring transparency, and protecting sharing and gifting practices, markets may be harmless. This is the thesis of Polanyi (1944) as applied to ecological economics: subordinate markets to other social institutions that pursue values like justice and sustainability, and everything will be okay (see Daly, 1992).


Markets do Not Serve Justice, Sustainability, Efficiency, or Plurality

Yet even in these cases where markets might seem appropriate, there are general reasons to prefer non-market alternatives where possible, or a diversity of institutions that includes coexisting market and non-market practices. In short, markets do not support ecological economics' foundational goals of justice, sustainability, efficiency (Daly and Farley, 2004), and value pluralism (Martínez-Alier et al., 1998).

Markets do not promote distributive justice because they allocate goods toward preferences backed by purchasing power, not according to needs, equal shares, or contributions to society.5 They generate behavior that would be considered unethical in non-market settings (Falk and Szech, 2013; Kirman and Teschl, 2010; Shleifer, 2004; Strutton et al., 1994; Vohs, 2015; Vohs et al., 2006) because they force people to try to maximize what they get and minimize what they give in environments of anonymity, self-regard, mobility, independence, isolation, and calculation (Bowles, 1991). Since what people do influences who they become, markets create humans who are more likely to perpetuate and tolerate injustice (Graeber, 2011).

Markets work against sustainability because they reward short-sighted and selfish behavior. Markets compel producers to shift costs onto others (Kapp, 1950) and replace human labor and ecological processes with fossil fuels and other inputs. To the extent that market competition promotes efficient resource use, the resultant economic growth leads to more resource use overall (Jevons, 1865; Magee and Devezas, 2017; Ostwald, 1909; Polimeni et al., 2008), eventually pushing human environmental pressures past critical thresholds of sustainability. Yet market prices rarely signal unsustainability.

Markets, therefore, do not necessarily promote efficiency either. This should not surprise us. If the premises of formalist economics are wrong, why would its conclusions be correct? Proto-ecological economist Otto Neurath argued that, since decisions involving unknowable futures cannot reasonably be based on today's prices, they should be made outside of markets, via what we now call deliberation and democratic planning (Martínez-Alier, 2019, p. 149).

Markets thwart pluralism by organizing economies in pursuit of monetary exchange value at the expense of all other social, spiritual, moral, aesthetic, environmental, and use values. Market prices can never fully represent these weakly comparable values as single pieces of quantitative information (Martínez-Alier et al., 1998; Vatn and Bromley, 1994).

But can non-market practices and institutions do better? How? When? Where? Which ones or what types? And for whom? Ecological economists should study non-market economies with these questions in mind."

(https://www.sciencedirect.com/science/article/pii/S0921800919312868)