Will the free market finally triumph?
Despite Seattle and the French farmers, free market advocates of globalization have largely won — even CHina is signing up to be a major player in the international trading and growth-oriented global political economy. So it is rare to hear this question anymore, even from so-called "enterprise institutes" dedicated to protecting property rights.
The problem is, what has been won?? My concern is not with the question no-longer asked in this context, but rather with the companion question not often enough asked: "Is there any such thing as a free market"?
To be sure, markets are generally efficient ways of allocating resources and accomplishing economic goals. However, markets are notorious for leaving out much of what people really value. In different words, the market price of doing business simply excludes much of the full costs or benefits of doing business because many effects aren't measured in traditional monetary units. For example, the cost of a ton of coal isn't just the extraction costs plus transportation costs plus profit, but also real expenses to real people (or real creatures) who happen to be external to the energy market. Such "externalities" are very real to coastal dwellers trying to cope with sea level rises likely to be induced from the global warming driven by massive coal burning.
I recall a discussion at the recent international negotiations to limit emissions of greenhouse gasses in which a chieftain from the tiny Pacific island of Kiribati was being told by an OPEC supporter opposed to international controls on emissions from fossil fuels that the summed economies of all the small island states were only a trivial fraction of the global GDP, and thus even if sea level rise were to drive them out of national existence, this was "not sufficient reason to hold back to economic progress of the planet by constricting the free use of energy markets".
"We are not ungenerous", he said, so in the "unlikely event" that you were a victim of sea level rise, "we'll just pay to relocate all of you and your people to even better homes and jobs than you have now", and this, he went on, will be much cheaper than to "halt industrial growth" (THis isn't the forum to refute the nonsense that controls on emissions will halt industrial growth.) After hearing this offer, the aging and stately chieftain paused, scratched his flowing hair, politely thanked the OPEC man for his thoughtfulness and simply said, "we may be able to move, but what do I do with the buried bones of my grandfather?"
Economists refer to the units of value in cost-benefit analyses as "numeraires" — dollars per ton carbon emitted in the climate example, is the numeraire of choice for "free market" advocates. But what of lives lost per ton of emissions from intensified hurricanes, or species driven off mountain tops to extinction per ton, or heritage sites lost per ton?? Or what if global GDP indeed goes up fastest by free markets but 25% of the world gets left further behind as globally economically efficient markets expand? Is equity a legitimate numeraire too?
Therefore, while market systems seem indeed to have triumphed, it is time to phase in a new, multi-part question: "How can free markets be adjusted to value what is left out of private cost-benefit calculus but represents real value so we can get the price signals in markets to reflect all the costs and benefits to society across all the numeraires, and not simply have market prices rigged to preserve the status quo in which monetary costs to private parties are the primary condition?"
I hope the new US president soon transcends all that obligatory free market rhetoric of the campaign and learns much more about what constitutes a full market price. It is very likely he'll get an earful as he jetsets about the planet in Air Force 1 catching up on the landscapes — political and physical — of the vastly diverse countries in the world that it is time for him to visit. Many world leaders are quite worried about just what we will have won as currently defined free markets triumph.
STEPHEN H. SCHNEIDER is Professor in the Biological Sciences Department at Stanford University and the Former Department Director and Head of Advanced Study Project at the National Center for Atmospheric Research Boulder. He is internationally recognized as one of the world's leading experts in atmospheric research and its implications for environment and society. Dr. Schneider's books include The Genesis Strategy: Climate Change and Global Survival; The Coevolution Of Climate and Life and Global Warming: Are We Entering The Greenhouse Century?; and Laboratory Earth
