The Unmaking of the Market

In the most famous passage in The Wealth of Nations, grandfather of capitalism Adam Smith wrote:

Every individual...generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.

In other words, Smith argued, that which is selfish also serves the greater good. A few years after the fall of Enron and a few months into the sub-prime mortgage crisis and ensuing recession, it should now be fairly obvious that the invisible hand is, in fact, a visible fist -- a greedy few organizing the economy to their own benefit with the rest of us reeling, not benefiting, from the consequences.

Of course, this shouldn't come as a surprise. During the Gilded Age, robber barons like Carnegie and Rockefeller made their fortunes on the backs of steelworkers and miners. Throughout colonialism and continuing today, Western empires have grown their coffers at the expense of natural resources and communities in the Global South. Milton Friedman, the midwife of capitalism in its present form, once wrote that the "social responsibility of business is to increase profits." There may be a few occasions in which corporate profit motives and the public good are aligned but from public housing to AIDS drugs in Africa to military contracting, it's altogether too easy to think of instances where the private sector's bottom line comes at the cost of the public interest.

Once upon a time, we had a healthy and robust government -- public structures to look out for the public good. From roads to water systems to schools to emergency management, we used our shared tax dollars to pay for our shared needs. Then, around the 1980s, corporations looking for the next business opportunity figured that attacking government could open up a whole new industry, making money off the things that make America work. Sanitation, transportation, healthcare -- we took good public programs and turned them over to private profit. The idea was that business would do it better. But the aftermath of Hurricane Katrina, with private contractors filling the role of the once robust Federal Emergency Management Agency, proved a stark illustration of Milton Friedman's point: Left to its own devices, the market will put profit ahead of everything, even human life.

It's a funny twist on history, really. Time and time again we see the market fail to look after the public interest. And time and time again we rush to privatize public services, or spend tax dollars not on public programs but exorbitant subsidies for private business. Why, with Wall Street collapsing around us, do we continue to privatizing everything that isn't nailed down?

In a fantastic new book entitled Keeping the Promise?, Leigh Dingerson and colleagues from Rethinking Schools and the Center for Community Change explore the debate over charter schools and the privatization of public education. And in a very provocative pamphlet entitled "Just Another Emperor? The Myths and Realities of Philanthrocapitalism", Michael Edwards examines how venture capitalism and other for-profit principles have invaded and affected philanthropy and whether profit-driven means can achieve the ends of social justice. Both pieces push us to examine scenarios when Adam Smith's invisible hand is playing puppet master with the public interest, to gain private profits but not really help the greater good.

Maybe, with the limits of privatization confronting us from the classroom to the emergency room and everywhere in between, it's time we start investing in the very visible hands of all of us, public structures that protect the common good and community values, and not just profit.

Sally Kohn is the Director of the Movement Vision Lab at the Center for Community Change.

Comments

[mbaty]

Excellent post. Some would say you argue for socialism, but we should have learned by now that a system that marginalizes the majority is doomed to fail eventually. Money is something we've made up anyway as a means of expressing value conveniently. What will happen to the rich people at the top 1% when money no longer means anything? We all know that there is enough--enough food, water, shelter, healthcare, and yes, money for all of us to live fulfilling lives when we share what we have. The playing field must change or the game will end--because many people either won't be able to afford to play, or they'll simply opt out, or both. We all agree with the principle of a fair exchange, but the only reason we use money in that exchange is because it's convenient. We're making it up.

[esquire07]

Privitization of everything - with no regulation - that is where the Bankrupt nation is headed. Privitization has made the rich richer and the poor poorer... and it WILL get much worse. There is no end to American Greed and Inasanity.

It will be intresting to see where the country lands when everything comes tubling down in the next few years.

The Iraq Bill is coming do, and Americans will suffer dearly. But at least the Bushes and Cheney's will be ok.

Capitalism gone Wild !!! Gonna make the Great Depression of the 30's look like a good time.

[fisharefreinds]

Thank God for your blog, but an investigation must get underway regarding the myth that "private companies can handle public needs better and more economically efficiently then voted servants of government." So far, the cost has been rising, no, booming, wherever we have handed over the purse strings to private companies--like prisons, roads, waste collection, the list is long. With regard to highways in particular, there has been a gross negligence on the part of governments to upgrade roads, allowing Governors to point to the inefficiences of government to manage the problem, Efforts to build mass transportation--in my state, Washington--are a joke, they have no such real plans, and the government has no intention of investments of that sort. What they will do now is claim failure, require the taxpayer to pick up the bulk of building any new roads and then hand the management over to a private Corporation whose risk will be zero, but return will be huge. This is the game and it is being played by Democrats and Republicans alike. Look at that cost of prisons since management has been handed over to private companies, and look at the harsh and harsher legislation passed for all kinds of offenses in the same interum. It is no coincidence.

[BadBob420]

I think you misunderstand Adam Smith's invisible hand theory. Instead of blameing Wall Street, and other greedy types, we should be blameing ourselves. The theory states that EVERYONE acts in their own self interest. The problem is that we haven't. We have allowed ourselves to be raped. If we all had been more aggressive in stopping these people from robbing us blind, we would have been acting in our own interests. Profit is not confined to just money. If Public Works builds a new water line or bridge, then we "profit" from it. If the CDC discovers a way to eliminate a fast moving virus, we "profit " from it. The answer is for everybody to get up from the couch, put the beer and gameboys down and start actively acting in your best interests to offset the Bad Guys!!!

[Cathexis]

Um ... Bob ... we "let ourselves be raped?"

Let's not "blame the victim," here. We try to "protect ourselves" by setting up institutions to regulate Business. When the safegaurds are removed due to systemic deregulation, then we get screwed. But that IS becaus eof Wall Street and the "greedy types" who forced/oversaw the mass deregulation!

Further, the whole concept of Caveat Emptor sucks and shows the systemic bias we have towards protecting corrupt Business over consumers and individuals.

[BadBob420]

Why not blame the victim? It is, in fact, we who allowed the systemic deregulation by not voicing our concerns. A very small portion of the population even takes the time to vote let alone be actively involved. Nobody cares, and then when the shit his the fan everybody says,' oh don't blame me. I'm just a victim here." Come November, however many votes McCain gets is a small percentage of those who like to get it in the ass as long as they can wear their lapel pin!

Yes, the concept of Caveat Emptor sucks because nobody wants to take responsibility for themselves. They all want someone else to deal with it. Then when they have been taken advantage of they cry "I'm a victim" They are only a victim of their own laziness.

How do you propose we solve the systemic bias we have for protecting corrupt business? By eliminating investment and commerce? The first rule of the jungle is; watch out for yourself or you will get eaten. Quit complaining and start demanding your representitives represent you and not their own interests. If they don't comply, throw them out and or have them arrested if they commit a criminal act. Apparently we just like to complain. It's reall too much trouble th actually do something about it. That must be it. Otherwise this entire administration would already be in jail.

[Novista]

I'm just wondering where all that Wall Stl. profit is?

I'm wondering too how 'privatization' is really defined when government is a silent partner in what has gone on for years.

I'm wondering how all the structures that were erected, from the SEC and so on, allowed Enron to even exist? I'm wondering why the ratings agencies had Enron as a 'buy' just two weeks before it deep sixed.

I'm wondering why NO one in the mainstream media ever said, "This is all a house or cards!"?

I'm wondering why kneejerk liberals blame the market when the collusion between government and incompetents even allows bailouts to continue? I'm wondering, when Fannie Mae and Freddie Mac get bailed out, GSEs ostensibly intended to 'help the commons', why no oversight happened before?

I'm wondering why rhetoric and ideology always gets in the way of common sense?

[DrVeruju]

Thinking about NAFTA, CAFTA and all the other Free-to-exploit Trade Agreements, the bit about "By preferring the support of domestic to that of foreign industry " has been cynically ignored.

Privatization can only be justified if there are strong, enforceable regulations in place.

[dadw5boys]

Privatization has been a failure all over the world where it has been pushed by the USA as the greatest thing sice sliced bread.
Water system in Africa, South America, Asia, Eroupe and even in the good olde U.S. city of Alanta all failed after being Privatized.
Alanta was lucky to be able to take over the water company without much hassle as the owners disappeared without a trace with all the company funds leaving billions of debt and only the wealthy neighborhoods with good water pressure or even fire hydrantes that worked.
In Africa water lines to poor villiages were dug up and pay per minuite water meters were installed.
Community water supplies were blocked off and piped to the private water system drying up streams and diverting water to wealthy neighorhoods for fountains, pools and lawns.
In Bolivia water was cut off to large parts of the city and poor neighborhoods so they wealthy could water their lawns and fill swimming pools. Water was only turned on to those neighborhood late at night after the wealthy went to bed.
Yeah allow fools to control your water and see what happens. Look at what they have done to your military with privatization. Blackwater!
Look at what they have done with the food supply with privatization. No Inspectors. Genitically altered seeds and a food shortage. The more free trade we have the fewer people get to eat.

[USBrit]

Umm, not quite accurate as you are assuming the goal of the privatization was the providing of better services at lower cost. Even though that was the assumption of many, and indeed stated by the happy members of the Chicago School of Economics from whence this plague originates, the real goal was to make certain private individuals massively wealthy, in which regard it has performed spectacularly. Any actual services are merely incidental. In the UK the privatization of the Brit Rail is widely regarded in the country as a very serious mistake, and for that and other fakeries, Dame Thatcher is not well respected except by a core of Tory party members. The private company that was supposed to maintain the rails in the UK was such a disaster that in the end the company was removed from its post and the government now pretty much manages the maintaining of the physical infrastructure of the railways, although the trains are at present still privately owned. And I cannot honestly say that the service provided is superior to that provided by Brit Rail at an earlier time. Another free market success story though.