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There's No Such Thing as a Free Market -- Just a Matter of Who Pays for It

Raj Patel argues that the corporate capture of government and our current financial crisis are the result of our bankrupt political system.

Raj Patel opens his new book, The Value of Nothing: How to Reshape Market Society and Redefine Democracy, with Oscar Wilde’s observation that “nowadays people know the price of everything and the value of nothing.” Patel shows how our faith in prices as a way of valuing the world is misplaced. Revealing the hidden ecological and social costs of a hamburger -- as much as $200 -- he asks how we came to have markets in the first place. Both the corporate capture of government and our current financial crisis, Patel argues, are a result of our bankrupt political system. Searching for solutions, Patel goes back to basics in both economics and politics.

Raj Patel has worked for the World Bank and WTO and been tear-gassed on four continents protesting against them. He is a visiting scholar at UC Berkeley’s Center for African Studies, a researcher at the School of Development Studies at the University of KwaZulu-Natal, a fellow at the Institute for Food and Development Policy (Food First) and the author of Stuffed and Starved. Though recently heralded as the Maitreya (or chosen one) by members of Share International, Patel protests he's just an ordinary bloke.

Terry McNally: You have worked for and protested against some of the same organizations. Tell us a bit about your path.

Raj Patel: I’m a child of imperialism, or as it’s more recently called, globalization. My family was scattered to the winds: my father was born in Fiji, my mother in Kenya, and I grew up in Britain. I’ve long been concerned about the links between different places, and how to fight poverty in those places. I was lucky enough, being born in a diaspora community, to be taken to the global south a great deal and to spend time staring poverty in the face.

When I was in the process of my graduate studies, there came an opportunity to work at the World Bank and the World Trade Organization. As an intern at the WTO, I delivered intelligence to social movements who were very interested in how that organization worked. At the World Bank, I was offered the opportunity to write a report that gave me access to classified internal documents looking at how they represented poverty and poor people to themselves.

Unfortunately I helped produce a puff piece that the World Bank then published under the title, "Voices of the Poor – Can Anyone Hear Us?" In it, the World Bank proclaimed quite loudly that it knew poor people very well and that some of its best friends were poor. That was obviously unacceptable, and I resigned soon after the professor who had originally hired me.

TM: Your experience at the World Bank reminds me of Nobel-winning economist Joseph Stiglitz, and even more specifically of ecological economist Herman Daly. When Daly was at the World Bank, they were producing a publication that included a depiction of the global economy. Daly suggested they put a frame around the economy to indicate the limits of nature. Others disagreed, and, after intense back and forth, the image was published without a frame. Daly protested that the economy does not exist in some abstract unbounded universe, and resigned soon after that.

RP: I am quite pleased to be part of a tradition of people who discover that the World Bank, however much it protests that it is interested in poverty and sustainability, turns out not to be. The fact that some pretty good people have run away from the World Bank in disgust does not mean that the people who remain are evil, but that they’re beholden to an ideology that they cannot see and they cannot change. The bankruptcy of that ideology is one of the starting points of The Value of Nothing.

TM: Could you say a bit about your earlier book, Stuffed and Starved?

RP: When I was at the Institute for Food and Development Policy in Oakland, California, also known as Food First, I wanted to write a book connecting the dots, to explain how it is that the United States has such epidemic levels of obesity, while there are globally epidemic levels of hunger. We now live in a world where there are a billion people who are overweight and a billion people who are starving.

For a while, of course, it was a revelation to point out that hunger happened in America, as well as obesity, but now the tragedy of that contradiction is even more magnified. In 2008 over 49 million went hungry in the United States, and at the same time, the United States was the most obese population on earth.

In Stuffed and Starved, I tried to explain how these two things are not accidental, but are actually the outcomes of a very complex system in which corporate power not only underpays labor -- particularly labor that produces food – but also sells us food that is systematically bad for us.

TM: You say "…that markets should know best is a relatively recent article of faith. It took a great deal of ideological and political work to make it part of government’s conventional wisdom.” How did this well-constructed belief in the market impact the food crisis and the financial crash of last year?

RP: Based on the idea that markets know best, government regulation and oversight was pretty systematically dismantled in the 1970s, 1980s, 1990s. That regulation had taken a wide range of forms, from protection for union organizing to banking regulation and oversight, from food grain reserves in the U.S. and elsewhere to the ability of people to organize and think about a role for government that was anything other than cutting taxes and letting the free market do its thing. These are all things that were lost when the ideology of "markets know best" triumphed.

The food crisis wasn’t really because of a shortage of food. There were odd things happening in the global food supply, and strange events that affected a few grain baskets here and there, but, in the main, the driving force behind a lot of the volatility in food markets was speculation. Capital flowed from speculating on oil prices into speculating on the price of food, and all of a sudden the price of rice went up by 30 percent in a single day.

TM: The price of rice went up 30 percent in one day?

RP: Some dodgy policies happened in Southeast Asia at the same time as global markets were incredibly tight and there was a lot of speculation. All of a sudden the interconnectedness of global markets in rice meant that the price jumped.

Food prices soared in 2008 for a variety of reasons, a lot to do with the interconnectedness of world markets. Locally sourced rice wasn’t able to be produced and released to the market in ways that were acceptable to everyone, so those food price rises led to protests.

Haiti is a perfect example of how market fundamentalism destroyed an economy. At the beginning of the 1980s Haiti grew the majority of its own rice. But people in Haiti wanted a left-wing government, and two U.S. presidents didn’t think that was a good idea. Presidents Reagan and Clinton negotiated for Haiti a structural adjustment loan from the World Bank and the International Monetary Fund. Haiti, a very indebted country, would be given money in order to pay off its debts, on the condition that it open its economy to the free-market-knows-best mentality.

The trouble is there is no free market. There’s no free market in food for sure. You have Haitian rice farmers who earn two dollars a day if they’re lucky, competing against U.S. rice farmers who get a billion dollars a year in subsidy. It’s not surprising that Haitian rice farmers first panic and try to produce more rice just to be able to survive, and then in the end, give up to become sweatshop workers in the city.

As a consequence, in 2008 there were vigorous protests around food. First of all, demanding the return of a democratically elected president, Jean Bertrand Aristide, deposed in an international coup in which the U.S. seems to be very heavily involved. But also demanding bags of subsidized rice that came from the U.S. labeled “gift of the people of the United States." That gives you some sense of how the markets have been politically enforced in places that didn’t want them, and how this market-knows-best mentality turns out to be a tool with which poorer people are subjugated to the needs of the most powerful.

TM: When you throw someone who can feed his family or a community that can feed themselves into the global marketplace…as long as they’re able to compete with subsidized produce from richer countries they’re okay, but if the market doesn’t work for them, even temporarily, they no longer have the life raft of their own food to feed them.

How did the free-market-knows-best influence the Wall Street bubble and the crash?

RP: You had a series of decisions around regulation, with the banks thinking that they ought to be able to regulate themselves. But they also had an ideology, the efficient market hypothesis: if you let markets reign freely, then all knowledge that is available will be brought to bear, and markets will be able to price assets correctly.

But there was a problem in the way compensation in Wall Street was structured, because if the market really prices everything exactly and correctly the minute that it hits the market, there’s no room for anyone to make any profit. There was a sort of inbuilt incentive for people to systematically ignore the risks in certain financial products and in certain kinds of trades.

If they could shuffle off that risk into the next quarter, they would be rewarded handsomely this quarter and their bonuses would be high. By basically gaming the system with regulations -- that they authored -- which encouraged a certain kind of playing fast and loose with the numbers, it was possible through some creative accounting for huge amounts of systematic risk to be kicked off into the future and ignored. And of course when the catastrophic risk was realized, everyone ran for the hills and started demanding public support.

We’re told that free markets are almost God-given things, that they fall from the sky, when, in fact, they are human made. Free markets very much depend on governments to pick them up when they fall.

TM: As we live with a shorter attention span, people think that what is has always been. You make clear that the notion of the market, particular ways of looking at human nature, and the whole idea of value and price were not ever so.

RP: The idea that price and value are different things goes all the way back to Aristotle. For them, chrematistics -- what does something cost in a market -- is basically a trivial question. And very different from economia, the business of provisioning and distributing resources within the household.

Although a price is the most superficial example of the economy at work, all the major economists, certainly Adam Smith and Karl Marx, knew very well that supply and demand, scarcity and availability, determined what something cost. As investigators, they were trying to figure out why something costs what it does. For Smith and for Marx, the question came down to labor.

Work and labor are somehow different from anything else that goes into a good, because labor transforms something from being a static inanimate part of nature into something that has much more value. This labor theory of value is why Adam Smith thought that the real value of anything was essentially the trouble that went into the making of it. Smith also had a much more sophisticated idea of how the economy was structured so that workers were systematically different from landowners who, in turn, were systematically different from merchants, who profited from the employment of laborers.

Karl Marx took that idea much further and systematized it much more thoughtfully into an explanation of why capitalism looks the way it does, and why modern capitalism is always going to externalize environmental costs while internalizing the profits.

Marx also made another point that I think is tremendously important, which is that modern capitalism doesn’t pay for household work. Modern capitalism doesn’t pay for the business of making new workers. Bringing up kids, educating them, and building new community won’t be paid for by capitalism because that’s a subsidy that capitalism needs in order to survive. Some U.N. researchers figured out that women’s unpaid work (in 1995) would cost $17 trillion if we were to pay market value -- pretty much half the total world output. Yet women own less than 10 percent of the world’s resources in developing countries and less than 10 percent of the land. And this is not an accident, it’s integral to the way the system works.

TM: Another very important notion you deal with is the commons. You point out that much of what we now see as a God-given economic infrastructure was made possible by the enclosure of the commons.

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