Opinion Sur
Libertarian paradigms base their theory on perfect competition. The development of capitalism led to the concentration of markets and showed that perfect competition does not exist in any country in the world. Even if it existed, it would not prevent the regressive distribution of income
The neoclassical, liberal, neoliberal and now libertarian slogan that the best way for markets to function is totally free of regulations and controls sounds seductive to a large part of society. What could be better than the greatest possible freedom to exercise any activity, without anyone to control and restrict it, and even less so if the one who does it is the perverse State that paralyzes and distorts everything?
But beyond the intuitive perceptions of a good part of people, in economics to postulate something so categorical there has to be a sufficiently verifiable rational foundation to support it. In other words, there has to be a logical and demonstrable reasoning that supports it, a scientific theory. Because economics, although it may not seem like it at times, is a science, a social science that is not exact, but a science nonetheless, and not a mere accounting technique of fiscal balance and regulatory deregulation.
On what basis are neoclassical, liberal, neoliberal and now libertarian theories to postulate with such conviction the objective of deregulating and ceasing to control all markets? Curiously, they are based on a paradigm, which as such is unprovable, such as perfect competition.
The perfect competition
According to the Royal Spanish Academy, a paradigm is “a theory or set of theories whose central core is accepted without question and which provides the basis and model for solving problems and advancing knowledge”. And perfect competition is a paradigm because the conditions that sustain it are practically non-existent in any market.
To corroborate this, let’s look at the conditions that a market must meet in order for it to be of perfect competition:
- Atomization of suppliers and buyers, i.e. that there is such a large number of them that no one has a dominant position.
- Free entry and exit of bidders and demanders, so that none of those who are already operating in that market can prevent a new one from entering.
- That each supplier and buyer have all the information of that market, in terms of prices, quantities, and quality of the product in question.
- That the product or input traded in that market is absolutely homogeneous, that is, that all the units offered are exactly the same and are not differentiated by any aggregate or additive.
- That no supplier or buyer holds a dominant position that allows it to impose conditions on the rest for its own benefit.
- There is no collusion (agreements) between suppliers or buyers to impose unilateral conditions on the other party.
- That cannot be imposed conditions of captivity which prevent changing the supplier of a good or service.
According to neoclassical, liberal, neoliberal and libertarian theories, only under all these conditions, and assuming that all atomized suppliers and buyers agree simultaneously on each transaction (as if there were a single auctioneer organizing them) can it be said that the price and quantity negotiated (agreed) would be those of equilibrium between supply and demand. in which all participants would be satisfied, no one would take advantage of anyone, and the allocation of resources would therefore be optimal.
Raise your hand if you know a market that works this way today! Nobody.
While at the dawn of capitalism, back in the eighteenth and nineteenth centuries, most markets for products and inputs responded roughly to these conditions of competition, the very development of capitalism led to an increasing concentration of supply or demand in most markets, to the point that today it is virtually impossible to find one that meets all the conditions of perfect competition listed.
Are markets failing?
This evidence led neoclassical thinkers in the middle of the last century to develop the concept of “market failures” to account for an increasingly widespread reality: that of markets with high concentration on the supply side (monopolies and oligopolies) or on the demand side (monopsonies and oligopsonies) and the even more generalized one of monopolistic competition, by which some suppliers manage to differentiate their products with some special characteristic to exercise a kind of transitory monopoly until a competitor manages to imitate them (milk and yogurt with additives, shampoos with distinctive properties, clothing with logos, among others).
This crutch of market failures led the neoclassicists to admit the intervention and regulation of the markets that suffer from this “disease” (nowadays almost all of them), opening the discussion about how these interventions should be so that the solution is not worse than the problem to be solved.
This defection prompted the heirs of the Austrian (libertarian) school to postulate two things: 1) that markets were flawless and that, if there were flaws, they were transitory until perfect competition itself put things in order, and 2) that worse and more inefficient are the “failures of the state,” making inefficient the allocation of resources that only free capitalism is capable of optimizing.
Thus, Austrian/libertarian fundamentalism challenged neoclassical neoliberalism, restoring as an indisputable dogma that no market should be intervened or regulated, much less by the State, to ensure the efficiency in the allocation of resources of the economy that can only be guaranteed by (anarcho)capitalism with its infallible natural “laws”.
However, leaving aside this still unsettled discussion about what is the most efficient form of resource allocation in the economy, there is the question of the social effects of perfect competition. To this end, it is interesting to recall the definition of optimization in this allocation that the Italian economist Vilfredo Pareto (1848-1923) postulated at the end of the twentieth century, arguing that this efficiency occurs when the economic improvement of some is not achieved to the detriment of others and that the optimal situation (Pareto optimum) is achieved when no improvement is possible without harming others.
Efficiency without justice
Ingenious, isn’t it? However, this definition leaves aside the social consequences of this (anarcho)capitalist efficiency since, taken to its purest extreme, it can imply, and in fact has implied, that a very low percentage of society is the one that obtains permanent economic improvements while the rest remains the same or worse than before. Seen in this light, the ingenious Paretian optimum only serves to explain economic efficiency, leaving aside the growing distributive regressivity and social injustice.
In its latest report presented at Davos 2024, the international NGO OXFAM states that so far this decade the combined wealth of the five richest (male) people on the planet has more than doubled, while the (wealth?) of almost 5 billion people has been reduced. And that the richest 1 percent of the world’s population owns 43 percent of global financial assets. Curiously, in neither case are they people belonging to the political caste.
To sum up, not only does perfect competition no longer exist in almost any market, but, even if it did, it would not prevent the regressive distribution of income and the consequent concentration of wealth at the top of the population pyramid, a phenomenon much more accelerated and extreme with non-competitive markets, which are not “failing” either, but respond to what is already their “natural condition” in contemporary capitalism.
Thus, it is quite clear what neoliberals and libertarians (united by the fear of social justice?) defend and promote: the growing concentration of wealth in fewer and fewer hands, which are the ones that can finance the intellectual champions of anarcho-capitalism.
However, on the other side of this ideological divide, heterodox and “populist-progressive” must also learn that not just any regulation is good and that many times it gives worse results than what it is supposed to fix. And if not, let’s us think, as we have said on another occasion, about the indiscriminate subsidy of energy consumption, including those who have the economic capacity to pay the full tariff, forgetting that inequality between equals is as much injustice as equality between unequals, and promoting an inexplicable excess of consumption of such a scarce and expensive resource. But let’s leave this discussion for when the anarcho-capitalist experiment is exhausted, as soon as possible.
Published in Cash on March 10, 2024
If you liked this text, you can subscribe by filling out the form that appears on this page to receive once a month a brief summary of the English Edition of Opinion Sur
