Do Markets Like Totalitarian Governments?

Food for thought.  We’ve been bombarded with messages for at least 20 years about how markets and democracy have triumphed. Central planning is dead.  Further we’re constantly told that democracy is “on the march” and totalitarian governments can’t survive.  The intellectual descendants of Milton Friedman and Hayek like to assert that markets promote freedom and democracy.  But do they really?  From Washington’s Blog here’s some stunning comments:

Head of World’s Largest Asset Manager: “Markets Like Totalitarian Governments”

Blackrock is the world’s largest investment manager.

As Wikipedia notes:

BlackRock is the largest g”lobal investment management firm headquartered in New York City. It is one of the most prominent financial institutions in the US. The company acquired Barclays Global Investors in December 2009 under the BlackRock name, making it the largest money manager in the world.

But BlackRock isn’t just the largest money manager … it is also the larges asset manager in the world.

As Wikipeda notes:

As of December 31, 2010, BlackRock’s assets under management total $3.56 trillion across equity, fixed income, alternative investments, real estate, risk management, and advisory strategies. Through BlackRock Solutions, it offers risk management, strategic advisory, and enterprise investment system services to a broad base of clients with portfolios totaling approximately $9 trillion.

And see this and this.

So it is stunning that Blackrock’s Chairman and CEO – Larry Fink – said on Bloomberg TV:

“Markets like totalitarian governments.”  (see here to watch the video)

Investors can determine whether a nation prospers or starves.

Investors can determine the course of nations, including who gets elected and who gets the boot.

No wonder there are so many totalitarian governments in the Middle East, North Africa and around the world.

No wonder totalitarianism has been creeping into America’s politics and economics. See this and this.

Because big investors (or at least big asset managers) like totalitarian governments. If they instead preferred democracy, democracy would flourish.

“Markets like totalitarian governments”.  It makes sense if by “markets” we really mean the collection of mega-wealthy managers and banks that control much of the world’s finance and money and then trade these paper obligations in the casinos and semi-rigged markets called “stock exchanges”, “funds”, and “banks”.  The things that the media refer to when they say “the markets did such and such today”.  It makes sense because such “investors” really crave certainty about the future and they abhor risk. Risk means uncertainty. In this sense totalitarian governments are a boon for such investors.  Totalitarian governments are more predictable, more amenable to whatever the mega-investors desire, and more controlling.  They’re about reducing future uncertainty.

Now the neo-classical/neo-liberal economic response will typically be that, no, markets are only about profit-maximization, not political control.  But there’s a hidden assumption in neo-liberal/neo-classical mainstream economics, an assumption for which we lack any evidence that it applies to the real world.  They assume that all profit-maximizing efforts are directed towards the profitable sale of more goods and services.  For most of us regular folks, getting richer means producing more and more valuable goods and services for the market. But the reality is that for the very elite, very wealthy, it’s not really about how to produce more. First, wealth is relative.  They already have most everything they can want in terms of goods and services. It’s now about status and ego. For that, absolute wealth is not important. Relative wealth is.  And there’s two ways to increase your relative wealth: make yourself richer, or ensure that others get poorer.  The other major objective of these very wealthy is protection of what they’ve got (see here for a description).  Either way, whether it’s ensuring a bigger piece of the existing pie or it’s protecting your existing assets, it’s more convenient to have pliable, very powerful government at your beck and call.  So, maybe “markets”, if you can call them that, do like totalitarian governments.

Of course, totalitarian governments in real-life tend to be very predictable for long stretches, but the end  is always unexpected and unpredicted. Witness recent events in Tunisia, Eqypt, and Libya.

Let Markets Be Markets

Joseph Stiglitz is a Nobel-prize winning economist. He is also a former Chief Economist of the World Bank. He resigned / was forced out in 2000 because of his criticism of IMF and US Treasury policies in forcing “free-market fundamentalism” onto developing and emerging market countries in the 1990’s. He has been a sharp critic throughout his career of the free-markets-are-always-right view that has often characterized the “Chicago boys”. Indeed, the theoretical work for which he was awarded the Nobel Memorial Prize demonstrates how markets will not achieve desirably outcomes without some forms of government regulations and institutional restrictions.

In this short video (8 min) he talks about how U.S. financial markets aren’t really “free markets” – they don’t meet the conditions for a functioning “market”.