Can free markets be fair?

‘Yes’ is the vigorous answer inĀ Free Market Fairness by John Tomasi. In both the popular view and among left-inclined intellectuals, free markets are intrinsically unfair, and the economic growth they foster only reaches people on low incomes through the notoriously fickle ‘trickle down’ effect. Freedom in the economic domain and fairness are in conflict.

Tomasi has two main counter-arguments. One is that long run economic growth in free market economies has done far more to benefit the poor than any alternative approach to organising the distribution of resources. He calls economic growth “the great fact.” I agree that the everyday benefits of growth – such as plumbing and affordable lighting and antibiotics and toothpaste and tea bags and …… – are almost always overlooked and certainly do benefit those on low as well as high incomes. However, I don’t think he addresses adequately the social justice question being asked in the aftermath of the Great Financial Crash, which is why almost none, none, of the real GDP gains of the past generation have gone to anyone below the top fifth or so of the income distribution. (I would probably answer this by saying we have only had a pretence of free markets, as a cover for creeping oligopoly.)

However, his second main argument is a powerful one often overlooked by many on the left of centre (although very much not ignored by Amartya Sen in his The Idea of Justice), that people who are poor care at least as much about freedom – including economic freedom – as people who are rich. Freedom is a good in itself, and social institutions should not be seen only instrumentally as a means of attaining an ideal distribution.

Anyway, this rather densely-argued book does a pretty good job of bridging the ground between libertarians and liberals (using the American terminology). He calls this third way “market democracy” and says it involves a “fundamentally deliberative approach to the questions of political life.” This emphasis on procedural justice is derived from (as in Sen) from John Rawls. Tomasi’s plea for us to step away from polarized views is surely welcome – although it seems pretty unlikely to make much headway in the US this presidential election year.

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7 thoughts on “Can free markets be fair?

  1. You say that

    “…almost none, none, of the real GDP gains of the past generation have gone to anyone below the top fifth or so of the income distribution.”

    I would certainly like to see the source for this contention. Four-fifths of people have seen no improvement in standard-of-living in the last 20-odd years ? Definitely not true in my personal observation.

    Perhaps the problem is the measuring-stick ? Internet access is very cheap, thus reducing its impact on “GDP gains” but nonetheless real and beneficial.

    • Us figures from CBO – sorry but my Internet here is too flaky for me to link at present. You’re right to doubt the claim for other countries but all the same I think the sense of unfairness goes wider than the US

    • As usual I can’t find the links, but the point is that firstly, GDP gain isn’t necessarily the same as standard of living. Secondly, whilst you may be able to buy cheap Chinese made clothes and electrical goods, your health insurance payments have doubled or more. Thirdly, there is a much wider than you would think increase in people living out of cars, living rough, without health insurance and using soup kitchens.

  2. Of course free markets can be fair, but that’s basically the wrong question. The question is – do they typically tend to fairness as an equilibrium. And all the best evidence (Beinhocker is good on this) is that the answer is… no.

    Another problem is that if you want to say “(I would probably answer this by saying we have only had a pretence of free markets, as a cover for creeping oligopoly.)” then few of the benefits of the modern world have actually come during periods of truly free markets in fact social democracy seems the majority system.

    Likewise, most of the trumpeting of free market impact on world development takes credit for Chinese urbanisation and industrial development in a state of oligopoly and financial repression far worse than we have here.

    As such, constrained markets seem to be the winners here, not free markets.

    • Well the ‘free market’ is an abstract idea that doesn’t exist in practice, and I stopped believing in it shortly after I gave up belief in the Tooth Fairy and Father Christmas. The important thing in my view is ensuring a fruitful combination of the state shaping the market constructively (infrastructure, laws etc) and vigorous enough competition. The latter is difficult to maintain, as has been proven very often.

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