Financial Times
July 5, 2012
People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies, much less to render them necessary.
Adam Smith, Wealth of Nations
As one of the few commentators to have always favoured competitive market capitalism I have had to ask myself a few questions. Apart from scandals such as the Libor rate fixing, we have had the behaviour of banks before the great recession; a trend to much greater concentration of income and wealth, squeezing the living standards of ordinary citizens; and one could go on. Yet if anyone expects me to issue a clarion call for more state ownership and control, they will be disappointed.
Heading the case for competitive markets is that they promote freedom of choice. They have also helped produce the biggest increase in wealth in the history of mankind. At their best they have an equalising tendency. Not literally equality of outcome or even opportunity, but a tendency for extra-large incomes to be eroded by new entrants and a ladder the ambitious can climb. This has sometimes been called “the American dream”, but its attractions are not geographically limited. There have been many blueprints for a non-capitalist market economy but despite some successes for workers’ co-operatives, as economic systems they have remained blueprints.
What then has gone wrong? In general terms it is difficult to go beyond Adam Smith. Few of us like competition; and the tendency to form closely knit groups to keep outsiders at bay is probably as old as the human race. For pre-capitalist examples one has only to think of the medieval guilds, whether of craftsmen or Master Singers. More subtle are the practices of bankers, as they come disguised as services for customers. In summary, success has depended more on whom you know than what you know. Hence the catchphrase “crony capitalism”.
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