Free Market as Forest

I’m a believer in free markets. Indeed, my support for organized labor is largely due to what I’ve been referring to as front-end-redistribution (negotiated between management and labor) as opposed to back-end redistribution (top-down tax-and-spend redistribution) because I think a great deal is lost along the way when we rely too much on what Mike Konczal has called ‘pity-charity-liberalism’. From the point-of-tax to the point-of-distribution there’s a tremendous amount of waste, not to mention the various other nefarious projects those tax dollars go toward (I’m looking at you Iraq war/TSA/Patriot Act/Guantanamo…). (Though there are many other services that are much more productive, such as public school, public healthcare, public transportation, etc.)

Besides, front-end redistribution creates more dignity and more agency for everyone involved, and especially for workers. So while I think we essentially need government (I cannot make the anarchist leap – democracy is good enough in my book) and believe it does indeed serve a legitimate purpose, I think a better long-term policy of redistribution is to give workers more power on the front-end. Pity-charity liberalism is often too-little-too-late, and creates in its wake a vast bureaucracy littered with red tape and fraught with bad institutional self-preservation incentives.

Besides this, much of the harm done to workers and to things like our healthcare system has been done through rent-seeking. Cartels have essentially ravaged the healthcare industry, making healthcare infinitely more expensive than it ought to be for most basic services by creating all sorts of artificial scarcity. Even the institutions of global trade are largely captured by a deeply entrenched corporate welfare apparatus.

Kevin Carson, in a comment to his Labor Roundtable post responding to another commenter’s assertion that outsourcing jobs is the fault of organized labor, notes that much of the offshoring of American manufacturing can be laid at the feet of the Sloan model of accounting and the stupidity of the MBA class:

The workers at the recuperated enterprises in Argentina, forced to learn about managing factories for themselves, learned very quickly that the MBAs’ poor-mouthing about “labor costs” and “competitiveness” was so much horse shit.  They found that when they eliminated all the high-salared managers, most of the unit cost problem just evaporated.  Since they didn’t have accounting degrees, they also didn’t know anything about ROI and the theology of direct labor hours.  So they essentially reinvented, without knowing it, the cash accounting model of Henry Ford:  if you have more money at the end of the week than at the beginning, you’ve made a profit.

And cuts in labor costs are undertaken in complete isolation from consideration of what Crosby called the costs of poor quality.  In hospitals, nursing staff is cut drastically because the only thing that shows up in their cost accounting calculations is the actual decline  in direct labor hours, which is the only thing that matters.  The increased costs from falls, med errors, hospital-acquired MRSA infections, legal liability for negligent understaffing, etc., which MORE THAN OUTWEIGH the nominal savings from decreased staffing, don’t even show up as part of the same bottom line.  And the reductions in efficiency that result from decimating the human capital, with all its tacit, distributed, job-specific knowledge, don’t show up in their cost calculus either.

So, my short answer to your question of why I think the MBAs are offshoring manufacturing, is that they’re made as functionally stupid by their self-serving ideology as the apparatchiks at Gosplan.

I’d also throw in, BTW, the role of the state in facilitating the offshoring model or what Naomi Klein calls the “Nike model” of TNCs outsourcing actual production to independent job shops while retaining corporate control of finance, marketing and IP rights.  If it weren’t for a strong IP regime (including trademarks), the legal infrastructure for maintaining corporate HQ’s control of oursourced production wouldn’t exist.  The multiple hundreds of percent brand name markup between what the job shops are paid for a lot and the retail price paid by consumers in the U.S. would disappear.

The state also directly subsidizes the offshoring model.  The main item financed by foreign aid and by World Bank loans, over the past sixty years, has been the utility and road infrastructure needed to make much offshored production profitable.

You’ve got a corporate culture that obsessively strains with a teaspoon at the alleged costs of “extortionate” union workers, while pouring corporate welfare by the billions of gallons down the swinish gullets of extortionate CEOs and coupon-clippers.

But yeah, you’ve got to keep them nasty unions in line because them pore ole bosses need all the help they can get.

Too often, discussions of free markets, taxation, etc. focus on ‘the successful’ – on winners and losers. But what we actually have is a system of deeply entrenched favoritism, and a corporate class almost entirely insulated from risk and competition, sitting on more wealth and political influence than most of us can imagine. When libertarians talk about privatizing public services, I often recoil because often as not the big bureaucratic private firms are just as bad or worse than the governments they are replacing (often they aren’t actually replacing them, for that matter – just doing the same job with less oversight). Privatization is not the answer when the private enterprise in question is just a profit-based government service.

So I find the idea of a free-market system along the lines Carson describes very compelling, because it rips away this veil of success and puts a lie to the notion that anything even remotely resembling a truly free market system exists within our corporatist economy. The problem I have is figuring out how to get from the world we live in to the world that Carson envisions.

The Forest and the Trees

I realize analogies are limited by nature, but bear with me. Where I live, there is a huge, sprawling ponderosa forest stretching for miles and miles in every direction before tapering off into juniper and desert mesas. Once upon a time, this forest was thin. Large trees were well-spaced between one another, with light brush filling in the gaps. Fires frequently burned through the dry forests, burning the pine needles and small brush as well as many of the small trees. These fires very rarely grew large. They burned away all the debris and then sputtered out, leaving the ecosystem largely intact. The bigger trees very rarely burned.

When lumber operations began, people would put out the fires as soon as they began. This was relatively easy at first, because they were always very small fires. As the years went by, the forest became more and more dense. Many more small trees and shrubs survived, and the forest floor grew thick with pine needles and other debris. The area was settled and developed and putting out fires became more and more necessary because more and more people were at risk of loss of life and property. Add to that the fact that more and more people were out in the woods potentially causing fires. But most importantly, if a fire was started either by natural causes (a lightning bolt) or by people, it didn’t burn itself out anymore, because the trees were too thick, and the forest floor too covered in kindling.

And so you get fires like this one which burned near my home last summer, and which led to massive flooding during the monsoon season.

If we’d never put out the small fires, these big ones never would have existed. But when your livelihood is threatened by a small fire what choice do you have? If the market is a forest, and society is trying to live in that forest, we would be wise to leave the ecosystem in as natural a state as possible. But since we’ve put out so many fires, and changed the natural landscape into something so unrecognizable already, what do we do now? Intervention in the free market leads to this sort of complicated relationship between society and markets. But then again, the complicated relationship existed before as well. A fire is a fire. It doesn’t take long before a few small disconnected fires lead to concerted efforts to combat them.

That seems to be the fundamental problem facing a truly free market. The forest will burn horribly if we take a laissez-faire approach to forest-fire-fighting now that the markets are so protected. The whole thing will burn down. So we do controlled burns. We work with the forest we have. We try to minimize risk. And we work furiously to put out every single fire. The TARP bailouts were the most obvious effort to control an economic system that may as well be a tinderbox.

So how do you get from this forest to that one? I’m not sure it’s possible, and even if it were, I’m not sure we’d ever be willing, as a society, to let the small fires burn.

And so there must be other ways, some mish-mash of market and state and cultural ideas that can at once address our need to let the market ecosystem exist in as free a form as possible, but which also tackles the risk and inequity of such a wild system.