Reflecting on the departure of Baroness Margaret Thatcher and on her ideology (often described as “neo-liberalism”), it is a paradox that an individualist should put so much faith in an institution – the market. To paraphrase her much quoted remark that there is “no such thing as society … there are individuals and families”, might we use the same logic in our approach to economic thinking?
There is no such thing as “the market” in a sense that it has a personality of its own: what we call a market is nothing more than the aggregate of individual economic transactions and choices. Of course we can measure economic trends and make forecasts, but we have to realise that a market, like any other human institution, is subject to merits and weaknesses – good and bad.
What of the “invisible hand” and the efficient allocation of limited resources? “Efficiency” is defined only in narrow economic terms. It is still possible (and abundantly evident) that even in a “free” market, some participants are able to grab more than they need, whilst others are left short of left without. Efficiency has little regard to what is needed or what is just. This was recognised by Adam Smith in his writings.
When approaching the question of economics, liberals should consider whether an economic policy satisfies our values – whether it supports a “free, fair and open society in which none shall be enslaved by poverty, ignorance or conformity”. If it does not, it should not be supported. This was the approach taken by the “classical” liberals of the 19th century. They have been criticised in hindsight for their adherence to Adam Smith’s classic economic model, but to be fair, that was the only model that existed at the time. Liberals just had to cope with what they had. It is the belief of social liberals that we should support economic policies that underpin our values; to balance efficiency with fairness, or to put it another way, to balance the values of liberty, equality and community.
When a landlord increases the rent suggesting that this is the result of market forces, we should remember that it is his choice – he doesn’t have an invisible hand tied behind his back; the rent demand bears his signature at the bottom. And when competition drives down wages and working conditions for textile workers in South Asia, choices are also being made – whether to outsource and who to outsource to. The financial crash of 2008 showed that people can make wrong choices in a market; sometimes disastrous ones. It is also possible that we can make shared choices – to prevent the bad choices of a minority from ruining the lives of the majority. Liberals should not shy away from making collective or community interventions in the market – as long as it supports our values.
As I have iterated, there is no such thing as the market; it is simply a collection of choices. To put blind faith in economic ideology is both naive and dangerous. I believe that it is time for us as individuals, as communities, and as a country, to take responsibility for the choices that we make.