"The market knows best"


The "market" seems to be regarded (by the media and business) as a benignly neutral "mechanism" with no agenda (unlike governments). Those who quote Adam Smith's notion of the market's "invisible hand" (usually without having read Smith's Wealth of Nations) sometimes imply that the market is infallible.

Charles Hampden-Turner and Fons Trompenaars argue, in The Seven Cultures of Capitalism (Piatkus; 1994) that "market" economics can't be adequately explained by impersonal market forces. The authors criticise the way the market is revered as some kind of neutral arbiter "out there". They describe the classical economic doctrine of profitable self-interest within such a "free market", as "perhaps the world's leading example of cultural bias and historical circumstance disguised as a principle of science". To "leave it to market forces" doesn't mean letting an impersonal mechanism of allocation operate; it means letting cultural preferences operate.

The authors accordingly focus on the cultural biases of the countries they review (UK, USA, Japan, Germany, France, Sweden, and Holland). This cultural analysis is fruitful in economic insights. For example:

• "Competitiveness" means something different in each culture. In Britain it means short-term profit (which is increased by screwing everyone except the shareholders). However, obsession with profit is not a common factor in successful economies. German, Swedish and Dutch companies compete (so Hampden-Turner and Trompenaars claim) at least partly to benefit customers, employees and community, and, "the Japanese see capitalism as a system in which communities serve customers, rather than one in which individuals extract profits".

• In Holland, Sweden and Japan, business success is seen as a choice for idealists and those dedicated to aesthetics. It's viewed as something integral to the community. In the UK and US, idealists are put off by the emphasis on making a quick profit regardless of larger visions.

• In US and UK companies, people seem to be in a hurry. The "don't waste time", race-against- the-clock attitude leads to short-termism and widespread anxiety among employees. This tendency can be traced back to the Puritan ethic: "The Puritans were not, like those of other religious persuasions, awaiting the afterlife in quiet contemplation. They had God's earthly kingdom to build and, given seventeenth and eighteenth-century life expectancies, a perilously short time in which to build it".

• Monetarism (the Thatcherite economic orthodoxy) may have been adopted more for its appeal to certain cultural preferences than for its practical effectiveness. Monetarism models the economy on clean, precise mechanistic metaphors. Governments can pull certain levers (eg interest rate) to get predictable effects, without actually having to get their hands dirty in the real world of business. This has historically appealed to the cultural values of the "gentlemen" ruling classes in England, Hampden-Turner suggests.

So, as an expression of cultural preferences/values (and not an impersonal, universal mechanism of allocation), how can a market can be more neutral/benign than an elected government? Of course, in the real world, government is a long way from being truly "democratic." But let's be consistent in our comparisons: in the real world, also, the economy is a long way from being a "free market".

See also:
FALLACY: "This is a free market economy" >