OCTOBER 1997 · VOLUME 18 · NUMBER 10
B O O K N O T E S
Everything for Sale:|
The Virtues and Limits of Markets
New York: Knopf, 1997
410 pp.; $27.50
ROBERT KUTTNER'S Everything for Sale is a book that should never have been written. Kuttner's book is elegant, insightful and well-argued, but it seeks to prove what should be obvious: that, at least in some cases, unregulated markets "don't deliver, can't deliver and shouldn't deliver." The savings-and-loan debacle alone should have been enough to alleviate any doubts as to the merits of this thesis. Unfortunately, blind free-marketist ideology currently prevails over common sense, and Kuttner's book is a desperately needed corrective to much of what now passes for economic conventional wisdom.
Kuttner seeks to take on the blind free-marketist position on its own terms. He focuses not on national economics ("macroeconomics") but markets for specific goods and services ("microeconomics"), where the free marketeers argue markets are most effective. And he generally avoids criticizing markets and market-driven outcomes on moral or fairness grounds; instead, he shows how markets fail to generate efficient outcomes -- their supposed strength.
Following two introductory chapters comes the core of Everything for Sale: a series of interesting case studies of how particular markets work and don't work. Kuttner profiles the markets for labor, healthcare, money (securities and banking), considers how markets affect technological innovation, assesses the experience of regulation and deregulation in the areas of telecommunications, airlines and electric power and analyzes safety and health regulation from an efficiency standpoint.
These case studies are powerful precisely because Kuttner draws his conclusions from an examination of the actual working of real markets. This contrasts sharply with the blind free marketist approach which Kuttner accurately describes as "begin[ning] with the theory, and hang[ing]models on assumptions that cannot themselves be challenged. The characteristic grammatical usage is an unusual subjective -- the verb form 'must be.' For example, if wages for manual workers are declining, it must be that their economic value is declining."
Because the case studies are undertaken honestly and in good faith, without preconceived notions, they lead to varying conclusions in each instance. But several key overriding themes emerge. Among them are the following:
First, the notion that markets can exist outside of politics is mistaken. For example, in the labor market, "public policy can make it easier or more difficult for employers to treat their workers as casual labor." Whether a worker sewing garments at home is treated under the law as a contractor or an employee (with rights to unemployment insurance, workers' compensation and collective bargaining) affects the very "product" of the labor market -- workers' labor. The same is true of whether slavery is permitted or not.
Second, competition -- the dynamic element of free marketeers model -- itself often depends on regulation. The deregulation of savings and loans led to a situation where some S&Ls where making dangerous, speculative investments, and offering high returns to their depositors. To attract deposits, other S&Ls also had to offer high rates and make the risky loans that could pay off high returns. Those risky investments turned out to be too shaky. The final result was not efficient competition but industry collapse. A similar danger exists with current efforts to further deregulate banking.
Third, "stakeholder" capitalism -- a kind of mixed economy approach that carves out large roles for government regulation, and unions and various means of corporate accountability to the work force -- can be justified over a blind free market approach on efficiency grounds alone. The market for "corporate control" -- the stock market merger and acquisition battles -- has led companies to focus on short-term investments and defensive strategies that protect management from takeovers without enhancing company efficiency. "If financial markets were an adequate, or an efficient, check on corporations, it would be harder to make the case that they should be supplanted or complemented with this stakeholder conception," Kuttner writes.
Kuttner has a healthy respect for the value of competition, but he believes unregulated competition can often be counterproductive. And he criticizes the Ralph Nader-led consumer movement assault on economic regulatory bodies in the 1970s. The Nader critique rested on two pillars: first, economic regulatory bodies (such as the Civil Aeronautics Board) had been hopelessly captured by the industries they were supposed to regulate; and second, competition would work better to promote the public interest than regulation possibly could. The consequence of this critique, particularly the second element, Kuttner argues, is that "when the full-blown attack on regulation matured in the late 1970s, its natural defenders were hobbled by a somewhat equivocal set of first principles. [M]ost liberal reformers harbored the earlier liberal ideal of a perfected market system."
This should be a controversial claim for Monitor readers, but it is a provocative one.
Other of Kuttner's contentions deserve unambiguous criticism. He is a weak defender of antitrust policy (supporting, for example, the Department of Justice consent decree with Microsoft); he supports limits on damages in tort suits, arguing that large damage awards may unfairly burden business; and he endorses the pollution trading concept. In contrast to his more detailed case studies, Kuttner offers scant empirical evidence to support these policy positions, all of which have been critiqued over the years in the Monitor (see, for example, "Revitalizing Antitrust," June 1996; "Tort Deform: Soft on Corporate Crime," March 1995; and "Selling Pollution," June 1992).
Interestingly, in all of these areas, Kuttner defers too much to markets -- a sign that his book is, if anything, imbalanced in favor of markets; and that makes his criticisms of overreliance on markets all the more biting.