Freedom and the Market

When freedoms clash, some must take priority over others. In the economy, the mechanism that determines which freedoms are prioritised is the property rights system. Property rights bestow the freedom to control and profit from what is owned. They determine who has decision-making authority over a given commodity. Ownership is necessarily exclusive: as soon as one person owns something, the rest of the world does not. When the Wild West pioneer claimed to own ‘newly discovered’ land and made it his home, he appropriated resources that had been the preserve of Native Americans for thousands of years. 

 

Neoliberal doctrine claims to oppose state interference and advocate a reduced state, but in order for private property rights to be upheld, state power must restrict the freedom of some at the expense of others. When intellectual property rights are upheld, the right of everyone else to use what has been claimed is curtailed. When natural resources are sold for private pro t, the right of everyone else to use them in the public interest is denied. In all cases, the state is waiting in the wings with batons and guns to intervene in defence of private property. There is nothing ‘small’ or ‘non-interventionist’ about a capitalist state. 

 

Free-market advocates have little to say about the proper distribution of ownership rights. Friedman argues that it’s difficult to favour one set of property rights over another on moral grounds, but that they should be clear-cut to avoid ambiguity. That’s largely it. Without criteria for evaluating different distributions of property, Friedman and most of his profession are happy to accept the distribution that history happens to have left to us – a result no doubt welcomed by those already in possession of great wealth, such as the 0.06 per cent of the population who own 50 per cent of the rural land in Britain. 

 

If you trace the history of any commodity, you arrive at a point at which something shared was taken into private ownership. The initial appropriation is beyond the purview of market transactions but necessary to create a market in the first place – you can’t sell something unless you first own it. But what does it mean to declare that the ancient resources of nature suddenly belong to someone? Interesting arguments have been put forward to show how this process could be justified under certain circumstances (all of which run into difficulties), but they do nothing to justify the actual historical origins of private ownership, which are steeped in systematic theft and violence. 

 

The privatisation of land played an important role in creating the conditions necessary for the modern economy. The transition to capitalism required that peasants who lived independently on the land be turned into wage-labourers by a process now called ‘enclosure’. Beginning in Britain in the sixteenth century, public land was cut off from local communities, depriving them of any other means of survival. This land had long provided peasants in Britain with the essentials of life: building materials, fuel and food. The right to live off the land ended when private ownership was asserted by decree. Bent on increasing their wealth, prosperous merchants and feudal lords cordoned off fields that until then had been held in common. 

 

The enclosures were strongly resisted by those whose lives depended on shared access to the resources of nature. Large groups of peasants repeatedly attacked them and numerous rebellions took place over the following centuries. Rebels were often executed and thousands died in violent battles. Legislation was passed that resulted in ‘6 million acres of commonly held lands . . . [being] put into private hands and subsequently hedged and fenced and farmed and herded and hunted for private gain’. The landless peasants lost their livelihoods. Desperate for employment, they were forced to the cities in large numbers. The more peasants that were displaced, the more wages were driven down. 

 

Much of today’s private property is the product of coercive intervention by the state on behalf of a wealthy minority. Since the sixteenth century, the assault on the commons in Britain has continued apace. Over the last forty years, two billion people in the Global South have been dispossessed of their ancestral homelands. Large numbers of impoverished people, cut off from resources once held in common, have been forced to trade their labour for low wages and driven into the slums of rapidly expanding cities. There is nothing voluntary about this process. Indeed, it’s hard to see the original appropriation and privatisation of commonly owned resources as anything but theft. Economic historian Karl Polanyi saw the enclosures as ‘a revolution of the rich against the poor’, a process by which the rich ‘were literally robbing the poor of their share in the common’, a view reflected by popular opinion.

 

These lines from the period capture well popular resentments: 

 

 

The history of colonialism and imperialism poses further challenges to the legitimacy of property rights today. From the fifteenth century onwards, European nations took control of much of North, Central and South America, large swathes of Asia and, by the twentieth century, most of Africa. Indigenous populations were wiped out or pushed off their land, communities were devastated and resources were appropriated for Western pro t. Forests, water systems and farmland were privatised, meaning that native inhabitants often had no choice but to sell their labour in order to survive. 

 

In the nineteenth century, the British Empire led the charge as weaker nations were coerced into opening their borders to British goods and signing trade treaties that advanced British commercial interests. In 1842, the British waged an opium war against China, using military power to smash Chinese trade barriers, obstructing their profits. In 1907, six years before becoming US President, Woodrow Wilson spoke publicly of the need to force open the markets of other nations: 

 

Since trade ignores national boundaries and the manufacturer insists on having the world as a market, the flag of his nation must follow him, and the doors of the nations which are closed against him must be battered down. Concessions obtained by financiers must be safeguarded by ministers of state, even if the sovereignty of unwilling nations be outraged in the process. Colonies must be obtained or planted, in order that no useful corner of the world may be overlooked or left unused. There is nothing ‘free’ about this process. The right of a nation to determine its own policy has been dismissed repeatedly by powerful countries concerned only with advancing their own economic interests. By the start of the twentieth century, colonial powers were using some of the wealth owing in from their colonies to improve the standard of living at home. This helped to stabilise the political system and avert the risk of revolution. 

 

The means by which rich nations influence economic policies in poorer nations have changed over time, but the goals have not. Instead of military force, rich nations are now more likely to use economic power. In practice, this has meant attaching stringent conditions to foreign aid and loans from international financial institutions. Joseph Stiglitz, former Chief Economist at the World Bank, observed at first hand the process by which rich nations controlled the economies of poorer ones: ‘the emerging markets are not forced open under the threat of the use of military might, but through economic power, through the threat of sanctions or the withholding of needed assistance in a time of crisis’. Desperate for financial assistance and foreign markets to buy their goods, poorer nations have little choice but to accept the far-reaching conditions, which often involve curtailing vital health and education spending, and scrapping essential subsidies on food and fuel. For decades, the IMF and World Bank have imposed rigid constraints, in line with orthodox neoliberal thinking, on governments in the Global South. Privatisation has been pushed through, free trade policies enforced, balanced budgets prioritised and democratically accountable government agencies – central banks, regulatory agencies, and even a tax office – have been turned into ‘independent’ policy agencies, free from public control. Destroying the autonomy of poorer nations in order to impose neoliberal policies is not just anti-democratic, it’s hypocritical. Contrary to prevalent myths espoused by neoliberal economists, free trade is not what made the rich countries rich. Almost all of today’s wealthy nations became rich by disregarding the now sacred tenets of free trade. The US and UK, in particular, were the most protectionist nations on Earth when their economies were developing. Only when it was clear that their industries could fare well against international competition did they advocate free trade. Ulysses Grant, US President from 1869 to 1877, understood the path to development: 

 

 

For almost a century leading up to the First World War, the US maintained the highest import tariffs in the world, hovering at between 40 and 50 per cent. Only when it became the richest country on Earth, able to beat back the global competition, did its trade barriers come down. Even then it continued to subsidise key industries heavily through publicly funded research and development. The logic of these anti-free-market policies is straightforward: new industries struggle to compete against stronger, more established foreign competition. A developing industry needs time to mature before it can face competition on a global scale. Economic development depends on new industries being subsidised and protected by the state, sometimes for decades at a time. This is known as the ‘infant industry argument’ and was formalised by Alexander Hamilton, one of the founding fathers of the US. It is this long-term thinking that enabled the rich countries to become rich. During the 1960s and 70s, before the neoliberal consensus had been constructed, developing nations were able to practise various forms of protectionism without being seriously penalised. They grew at twice the rate they would grow under neoliberalism from the 1980s onwards. Even now, as Western nations push poorer ones to drop their trade barriers, they continue to maintain barriers of their own. Throughout Europe and the US, billions are expended each year on agricultural subsidies. The rhetoric of free markets is often just that – rhetoric. When it comes to the crunch, corporations and governments do not let consistency stand in the way of profit. 

 

Today, there is barely a square inch of land or a single branch in a forest that is not owned by someone. Enclosure has moved beyond continents and territories, extending the reach of markets into every corner of our lives. One manifestation of the creep of market logic is in the domain of intellectual property. In what some have dubbed ‘an enclosure of the mind’, intellectual property rights are being extended to include facets of life that were once considered uncommodifiable. Property rights have been created for algorithms, symbols, words, ideas, seeds and even human genes. What can be owned, bought and sold is always changing and reflects the balance of power in society. The more the boundaries of the market expand into previously protected realms, the more poverty disadvantages the poor. What were once widely viewed as human rights – housing, water, healthcare and education – have gradually been turned into commodities available only to those who can afford them. 

 

In spite of today’s distribution of property rights being mired in a history of theft, colonialism, economic intimidation and slavery, we are told their protection is a matter of ‘freedom’. Even if we look past their sordid origins and focus only on how wealth is accumulated today, we find that it has nothing to do with fairness or justice and bears little relation to socially useful contributions, hard work or sacrifice. 

 

Friedman, along with the political establishment, ignores the many exploitative and immoral paths that have led to the present distribution of ‘ownership rights’ and invites us to accept without question that some people are extremely rich while others are extremely poor. This wilful blindness to gross inequality of wealth contrasts sharply with the importance neoliberals place on equality before the law. Such a selective commitment to equality favours those who enter the market already in possession of privilege and power. 

 

Suppose we wipe the slate clean and ignore for a moment the centuries of oppression, dispossession and violence that produced today’s global wealth distribution. Would that redeem the neoliberal position on freedom? Friedman makes the case that if every exchange involving labour, goods or money is entered into ‘voluntarily’, it must be mutually beneficial to those involved, who would otherwise not make the deal. This assumption has two major flaws. 

Those who enter into a mutually beneficial transaction are not the only ones affected by it. This is an old problem, and widely acknowledged, at the heart of mainstream economic theory. Yet most economists proceed on the assumption that the effects of transactions on third parties are minimal. If they are wrong about this, the notion that market transactions are characterised by voluntarism cannot be maintained.

 

The English economist Arthur Pigou pointed out in the 1920s that driving a car generates costs that are not borne by the driver. They are ‘external’ to the driver and are borne by the rest of society. They include the wear and tear of the road, sound pollution, increased traffic congestion and (we now know) the emission of greenhouse gases. However, Pigou assumed such costs were not significant. Cambridge economist Joan Robinson, a contemporary of Pigou and sharp critic of mainstream orthodoxies, didn’t agree: ‘[t]he distinction that Pigou made between private costs and social costs was presented by him as an exception to the benevolent rule of laissez-faire. A moment’s thought shows that the exception is the rule and the rule is the exception.’ Robinson is not alone in her assessment. ‘In reality’, write economists Rod Hill and Tony Myatt, ‘externalities are pervasive and of great practical importance. Every year, they cost millions of people their lives.’ And according to economist Emery K. Hunt, ‘externalities are totally pervasive’. 

Economist Raj Patel uses McDonald’s to illustrate the point. Like all corporations, McDonald’s is legally constituted to maximise profits. Its internal decisions are guided by the need to reduce costs and outdo competitors. It drives down the costs of its workers and resources as much as it can and avoids costs entirely wherever possible. If it can emit pollutants such as carbon dioxide without paying for them, it will. Whatever costs the company avoids paying end up becoming externalised, borne by the rest of society. The result is that the price of a McDonald’s burger does not reflect its true social cost: the bigger the gap between the price and the social cost, the more pro table the enter- prise. How big is this gap for a typical fast-food burger? A report by the Centre for Science and the Environment in India estimated that a typical fast-food burger ought to cost about $200.

 

One pervasive externality, often overlooked, is the negative psycho- logical effect on society of private consumption. To the extent that material consumption is equated with status, it is a competitive activity for those seeking to maintain or increase their position in the social hierarchy. As Karl Marx put it, ‘A house may be large or small; as long as the neighbouring houses are likewise small, it satisfies all social requirement for a residence. But let there arise next to the little house a palace, and the little house shrinks to a hut.’ Widespread attempts to increase status with material goods are self-defeating and wasteful. If some people are rapidly buying bigger houses, fancier clothes and ashier cars, other people may well feel that they also have to acquire these goods just to maintain their place in the social hierarchy. 

 

Almost everything produced in the economy makes use of energy from fossil fuels, which release greenhouse gases that accelerate global warming. Nicholas Stern, author of a report commissioned by the British government, The Stern Review: The Economics of Climate Change, writes that ‘these emissions are externalities and represent the biggest market failure the world has ever seen’. In 2015, a ground-breaking document by the IMF made front pages around the world by revealing that the fossil fuel industry is subsidised by the world’s governments to the tune of $10 million a minute! Or, if you prefer, $168,000 a second, or $5.3 trillion a year. That sum is greater than the spending on health by all the world’s governments combined. These subsidies are largely due to the unpaid costs of pollution – floods, hurricanes, air pollution and droughts – that are routinely dumped on governments. A report by environmental consultancy firm Trucost, which was sponsored by the United Nations Environment Programme Finance Initiative, found that if environmental costs were not externalised, the dirtiest industries would cease to be pro table and would go out of business. 

 

These externalised costs have inflicted severe damage on the Global South. One study estimated the cost of this to be $5 trillion. Most of the damage comes from the consumption and production choices of richer nations. ‘The ecological debt of rich countries to poor ones’, writes Patel, ‘dwarfs the entire third-world debt owed by poor countries to the rich which is only $1.8 trillion.’ The externalities of the financial sector are on a similar scale. Deregulating that sector triggered a global financial crisis that cost the world trillions of dollars. 

 

Externalising costs is a form of theft. It is taking something for nothing and leaving others to foot the bill. It is ubiquitous, permeating almost every market exchange. As sea levels rise, as the oceans are acidified, as forests disappear, as workers around the world are prevented from enjoying the profits they help to create, the extent of this theft is becoming increasingly difficult to ignore – and it is vast. 

 

Externalities are not the only factor undermining the ‘freedom’ of market exchange. Friedman is keen to press home that transactions – assuming both parties are well informed – are agreed upon because they are mutually beneficial. This may be true, but so what? Suppose a gun is pointed at your head and the assailant offers to spare you if you transfer your life savings to him. You accept because it is in your interest to do so – you keep your life and your assailant keeps your money: a mutually beneficial transaction. Was it free? Of course not. You were compelled by circumstances into accepting the terms on offer. This same principle applies to the labourer who agrees to work twelve hours a day in dangerous conditions for wages that barely keep her alive. She only agrees to do so because she is compelled by an alternative that is even worse. There are many means of coercion more subtle and effective than holding someone at gunpoint. 

 

If a person enters the market owning nothing but their own labour power, and another arrives owning great wealth, seeking to employ someone to further their own interests, the contract the two participants enter into is not free from coercion. Poverty is coercive. The threat of homelessness and hunger is no less real than that of a bullet. It reduces options and forces people to do things they would not otherwise do. As the eighteenth-century journalist Simon Linguet put it, the disempowered masses are compelled by ‘the most terrible, the most imperious of masters, that is, need’. 

 

It is in the financial interests of business to keep large sectors of society poor and powerless. Profits rise when workers are compelled by circumstance to accept poverty wages in order to survive. The more desperate people are, the more they can be exploited – in other words, their employer can appropriate a greater portion of the value their labour creates. Centres of production have moved around the globe, but the pattern of desperate people accepting employment on exploitative terms persists. Pro t thrives on desperation. 

 

China has become a popular corporate destination, with lax regulation, minimal workers’ rights, suppression of trade unions, and masses of impoverished young migrants fresh from the countryside. Take seventeen-year-old Tian Yu. In 2010, she moved from her village to the city of Shenzhen to earn money for her family. She found a job at a Foxconn factory, which churns out parts for iPhones and iPads. She worked in silence on an assembly line for twelve hours a day, six days a week, and slept in a crowded factory dormitory. The working conditions were so unbearable that within a month Tian Yu jumped out of a fourth-floor dormitory window in an attempt to kill herself. That same year saw eighteen other suicide attempts in Foxconn factories. TianYu survived but is now paralysed from the waist down. The factory owners responded by putting up nets to prevent any future jumpers reaching the ground. 

 

Bargaining power plays a decisive role in determining how a company’s income is divided up among those who contribute to its creation. And, although it is true that in a market no one has to subordinate themselves to anyone else (just like you don’t have to hand over your money when a gun is pointed at your head), the fact remains that the rich can survive quite easily without subordinating themselves, while the poor cannot. When disparities in bargaining power between employers and employees are sizeable, buying labour for less than it is worth is an easy way to generate profits, and, without the support of strong unions, the poor invariably have no bargaining power at all. This sits uneasily with neoliberal theories of ‘economic freedom’. 

 

That poverty reduces economic freedom has long been ignored or denied by the political right. The argument boils down to definitions. In principle, say neoliberals, those who are very poor have the same freedom to buy a yacht as anyone else; they simply lack the capability to do so; in other words, it is not their freedom that is lacking, only their capacity to make use of it. For Hayek, freedom meant ‘freedom from coercion, freedom from the arbitrary power of other men, release from the ties which left the individual no choice but obedience to the orders of a superior’. He regarded it as a profound mistake to confuse this form of freedom with ‘freedom from necessity, release from compulsion of circumstances’. But is the impoverished worker not destined to obey ‘the orders of a superior’? Is the woman driven by her hungry child to sell her body not destined to suffer ‘from the arbitrary power of other men’? 

 

How can a person be free to do what they are unable to do? Suppose inmates could buy their way out of prison for a large fee. Would it make sense to say that the poorer inmates, who would be shot for attempting to escape, are as free as the rich inmates sitting in the comfort of their homes? (After all, it is only the capability to pay that is lacking.) To call this freedom is to debase the term. A constraint on our freedom remains a constraint regardless of whether it arises from a lack of money, rights, strength or intelligence. Economists and philosophers can de ne freedom any way they want, but the restrictions, disadvantages and burdens placed on the poor do not disappear by redefining a term. 

 

The distinction made by Hayek has been accepted by thinkers across the political spectrum. The liberal political philosopher John Rawls, whose A Theory of Justice became something of a moral manifesto for liberalism, writes: ‘The inability to take advantage of one’s rights and opportunities as a result of poverty and ignorance, and a lack of means generally, is sometimes counted among the constraints definitive of liberty. I shall not, however, say this, but rather I shall think of these things as affecting the worth of liberty . . .’. Rawls argued that limited capability is just as restrictive and important as limited freedom, but humane as this position may be on its own terms, it concedes valuable ideological ground, allowing market fundamentalists to claim that their primary concern is the protection of individual freedom. 

 

Freedom in a market expands and contracts with spending power. If I try to do something that I cannot pay for, say travel to Brazil, I will be physically prevented from doing so. Poverty restricts options, and those restrictions are enforced by the state through coercive interference. The less money I have, the more I will be subject to this interference. Libertarian philosopher Robert Nozick, author of the influential Anarchy, State, and Utopia, argued forcefully against government interference in the market. In the 1970s, he helped lay the philosophical foundations of neoliberalism. His ideas continue to be used to defend the rights of private property and advance increasingly extreme free- market policies. Central to Nozick’s analysis is the idea that individual liberty is preserved in the market as long as no one is coerced into an exchange. To justify this he defines freedom in a contrived way: ‘Other people’s actions may place limits on one’s available opportunities. Whether this makes one’s resulting action non-voluntary depends upon whether these others had the right to act as they did.’ This is an extraordinary claim. When someone is sent to jail for a life sentence, he is deprived of his freedom whether or not we believe that society is within its rights to convict him. Legitimate coercion is still coercion. 

 

When someone living in abject poverty is forced to choose between taking a job they despise or dying of hunger, Nozick tells us the choice is voluntary, and thus free, so long as the actions of others in the economy have been ‘legitimate’ (of course, this raises the question: who decides which actions are legitimate?). But the legitimacy of other people’s actions does not make a person living in abject poverty any less desperate. As philosopher Gerald Cohen argues, if a woman is forced to take the long route around the outside of a field because of a large wall, she is forced to take the long route whether or not the wall has been erected legally. Focusing on the legality of the wall to determine whether she has been forced to take the long route is absurd. To establish whether an economic choice is voluntary or forced, the proper object of our attention should be the available choices, not the behaviour of other market participants.

 

Market enthusiasts like Nozick and Friedman have proposed and attempted to justify an institutional framework based on a narrow conception of freedom that is rooted in private property rights. Once established, this framework is portrayed as more or less inviolable, what- ever outcomes it may produce. Within it, the right of the wealthy to their profits takes precedence over the right of the poor to survive. Economist Amartya Sen explains that enormous human catastrophes can and do unfold without any infringement of private property and free market exchange, as history amply demonstrates. Famines are a prime example. According to Nozick, however, as long as others ‘had the right to act as they did’, those who die as a result of hunger, thirst or disease have lived and died ‘free’. 

 

For Nozick, human suffering can simply be side-stepped: he writes that the question of whether libertarian rights ‘are absolute, or whether they may be violated in order to avoid catastrophic moral horror, and if the latter, what the resulting structure might look like, is one I hope largely to avoid’. But what he ‘hopes to avoid’ is a central question. If his libertarian rights are absolute, then his system is compatible with the worst kinds of human suffering and oppression, and if not, what is left of his theory? Where do we draw the line? How much suffering is necessary to demolish his libertarian principles? 

 

Free-market fundamentalists often claim that freedom of the individual is at the heart of their thinking. In fact, it is not individual freedom but a system of rules that occupies that central position: the experiences and sufferings of real people are routinely ignored. In the name of individual rights, many individuals are disregarded. History is a testament to the dangers of subordinating people to the demands of an abstract, idealised system. To focus exclusively on formal procedures and ignore the conditions of real people, as Nozick and Friedman invite us to do, is to discount the forms of freedom that actually matter to people. For as long as it has dominated the global political scene, this narrow conception of freedom has left billions of people with bleak prospects, meagre opportunities, inadequate resources and insufficient autonomy. 

 

Ownership rights are neither absolute nor inviolable. Property is a social construct, a fiction maintained by legal and cultural institutions that depends for its existence on our collective consent. Property rights can be useful, but when placed beyond question and criticism, they become dangerous. When they are used to oppress and impoverish vast numbers of people, it is the people that should be defended, not the fictions. 

 

Against the backdrop of extreme inequality in our world, we would do well to remember that even when access to resources is not secured through oppressive and exploitative means, it is still ultimately a matter of luck – a product of the lottery of birth and the talents and opportunities it bestows upon us. Nothing we do makes us deserving of a disproportionate share of Earth’s bounty.