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Created: November 8, 2002
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CAN A MARKET ECONOMY SERVE THE POOR?
by the Rt Revd Richard Harries, Bishop of Oxford
html backup of the Bishop's lecture

Since the downfall of the Soviet Union and the demise of Communism in Eastern Europe, it is the market economy which has dominated the world. When the Soviet Union started to break up it was said that the Communist Party started to offer a reward of 50 roubles to anyone who renewed their subscription. At the same time they said that anyone who recruited someone else to the Communist Party would not only get their reward of 50 roubles but they themselves would be allowed to leave. Furthermore, if they recruited two people to the Communist Party not only would they be allowed to leave but they would receive a certificate saying that they never had been a Party Member. Communism sought to serve the poor and failed, can a market economy do any better?

First I will sketch out the elements of a market economy and say why I think that it is in principle compatible with a Christian ethic. When you take a bottle of Coke off the shelf and go to the check-out, the assistant waves the bar code across the scanner. This triggers a series of reactions which will ensure that in due course another Coke is manufactured and put on the shelf to replace the one which you purchased. In short, your choice, what you decided to buy, is the determining factor in what is produced. This is in contrast to a command economy, whether Communist or not, in which the government decides what is produced and how it shall be distributed to the citizens. I believe that the personal choice which is fundamental to a market economy reflects the high estimate that Christianity places upon freedom. Whether it is low level consumer choice, or a mature decision to live your life before God, the principle is the same. God has given us freedom to shape our lives and, through the consequences of our actions, to shape the lives of those with whom we have to do as well.

A market economy is based upon consumer choice. It also depends upon entrepreneurs, people who will innovate and take risks. Someone decides, let us say, that people are losing their taste for Coke and decides to set up a stall selling freshly pressed orange juice at a mainline station. It might catch on – or it might not. Here again, I would suggest, there is a congruity with Christian faith. For God took an initiative, and a huge risk, in creating a universe. He gave it and us a life of our own. It remains to be seen whether the outcome is judged a success or a failure.

There is another element to the market economy however, which is more problematical. In order to set up your stall of freshly pressed orange juice you need to borrow money. It turns out to be rather a success and you borrow a very great deal of money in order to buy stalls and employ people to run them on every major station. Then just as you are really succeeding a major company comes along and buys you out. They now have a near monopoly of the soft drinks trade. They quickly spot and buy anything that looks like a successful competitor and which could be potentially profitable to them. From a Christian point of view there are two problems here. Do we really want a society shaped by unceasing and ruthless competition? The second problem, the one I really want to consider, is the accumulation of money, and hence power, that comes to be in the hands of the relatively few who can dictate terms. Adam Smith, the great 18th century guru of the free market, powerfully puts the case against monopolies and there are strong laws in both Great Britain and the United States against them. Bill Gates for example has just come up against such laws. For a market to work there must be genuine competition, which there cannot be if one company totally dominates a particular market. But even with anti-monopoly and anti-trust laws, there can still be an agglomeration of money and power: and I mean power. For the money that has accumulated, capital, can buy the advertising that persuades people to buy your products whether they really need them or not. That money can buy newspapers that will support views favourable to your products; that money can, quite legally, be donated to a political party whose policies, in your judgement, will provide the best conditions for your business. All this is problematical because power is by its nature expansive. It wants more and more. None of this is in the least surprising to the Christian faith. For the Church has always taught that there is something skewed about human life which manifests itself in selfaggrandisement and power politics. But the problem remains. If some are relatively powerful, others are relatively weak. Some can work the system to their own advantage. Others can’t. Some have the resources to make things work for them, others do not.

In the early stages of human history it was military power that mattered. You ruled your community if you controlled the strongest force. With the development of parliamentary democracy military power became subservient to political power. The government that got elected controlled the forces, the Police and the Army, the forces of law and order, without which no society can hold together. Now, however, it is arguable that economic power has usurped political power as the dominating factor shaping our world.

Globalisation is a word one often hears these days. It means that what happens on the Tokyo exchange affects what happens in New York: the trainers you buy are made in Indonesia: the plane tickets you purchase are processed in India. It also means more problematical things. The world is now dominated by very large and extremely powerful trans-national corporations (TNCs) which operate all over the globe and are able to locate their headquarters on off-shore islands. They are able to switch their assets and their manufacturing plants from country to country and continent to continent. The financial strength of the largest trans-national corporations is staggering, far bigger than the gross national product of a good number of countries. I give you just a couple of examples. The revenue of General Motors is bigger than the GDP of Denmark. Its annual profits alone are twice the GDP of Zambia. The revenue of Hitachi (the 23rd largest company in the world) is larger than the GDP of Chile. In short, the power of international companies and their capital is a major threat to the capacity of the traditional nation state to order its own affairs. Unless there are more international agreements they will not be able to control these TNCs.

Whilst on the question of money I must mention another aspect of international capitalism that has become increasingly problematical. I accept that investment and hence capital is essential to a market economy, as my example of the freshly pressed orange juice strongly suggested. I also accept that if you are exporting and importing you will need to buy and sell currency. But the amount of money being exchanged on a daily basis is now of staggering proportion and according to The Economist “Only 7% of London’s foreign exchange transactions and 17% of New York’s involve non-financial companies”. In short, most currency trading is for very short term speculation: money engaged only in making more money, not being used to invest in goods or services which people might want. It has been estimated that for every dollar circulating in the productive world economy, $20-50 circulate in the economy of speculative finance. Here is a Monopoly world divorced from the underlying trade patterns which financial exchange is meant to service.

Globalisation does not mean, however, that governments are powerless and it is important to stress this. They still have power and, I believe, a duty to exercise it in regulating international capital in order to ensure that the nation as a whole does not suffer but benefits. Before the last election the Roman Catholic Bishops of England and Wales produced a document called The Common Good drawing on Catholic social teaching. The intercessions in the eucharist of the Alternative Service Book likewise ask for prayers for the common good. If there is an ineluctable tendency in a market economy for financial power to concentrate in some quarters not others, then the government, any government, has a duty to look to the interests of the whole. In particular this means safeguarding the interests of the most marginalised against the most powerful.

Power is a factor in human life that we have to reckon with and take with the utmost seriousness. We cannot simply wish it away with the assumption that enough idealism or education will put the world right. It won’t, for the world is an arena of competing interests which need to be regulated and managed if we are going to get anything better than the law of the jungle. The traditional way of managing competing interests in the West has been by balances of power. The classic expression of democracy as we have it in the United States, depends upon the separation of powers, keeping the functions of the executive, the legislature and the judiciary separate in such a way that the executive arm of government can always be called to account by the elected representatives of the people and both the executive and the legislature can be called to account by the courts. In the United Kingdom we have no formal doctrine of the separation of powers but in our own way history has given us a balanced way of operating. The classical Christian defence of this is by the American thinker Reinhold Niebuhr when he argued that “Man’s capacity for justice makes democracy possible. Man’s inclination to injustice makes democracy necessary”. In short, because we have this tendency to pursue our own interests, whatever the cost to others, it is necessary to have checks and balances on this, which is what we get in a democratic system. The implication of this is that if a new power block arises, as it has done with international capitalism, then the government itself must act as a check on that. Or, to put it more prosaically, the interests of government and the interests of business must not be coterminous. However sympathetic a government might be to business, its responsibility is to the whole, the common good, and in practice this means ensuring that it acts as a counter-balance on behalf of those most likely to lose out in a competitive free market.

Since World War II there have been a good number of Social Democratic parties in Europe which have been based on this philosophy. Accepting, sometimes rather grudgingly, the market economy, they have emphasised government intervention – at one extreme in the form of the nationalisation of major industries – in order that the well-being of society as a whole might be fostered. Many now argue that this strategy, however laudable in intent, can no longer work. Old style social democracy depended on a number of factors that have now disintegrated. For example it assumed a social system in which the husband was the breadwinner and the wife the housewife and mother, which allowed for an unambiguous definition of full employment. It assumed a homogeneous labour market where men threatened with unemployment were mostly manual workers willing to do any job at a wage that ensured their survival and that of their families. It was a time when there was mass production in basic sectors of the economy, which tended to create stable, if unrewarding conditions of work for many in the labour force. It went with an elitist state with small groups of public-spirited experts in the state bureaucracy monitoring the fiscal and monetary policies to be followed. Above all it assumed that national economies were substantially contained with sovereign boundaries and that the domestic economy was predominant over external trade in goods and services. As I have already suggested this is no longer the case. World trade by large international companies, shifting huge sums of money rapidly from one continent to another has eroded those boundaries at least as far as finance is concerned.

The present government of the United Kingdom under Tony Blair has accepted these arguments and sought to achieve the traditional aim of the Labour Party, justice for all, in a new way, the so-called Third Way, with New as opposed to Old Labour. New Labour is quite explicitly based upon certain values rather than adherence to a particular economic theory, the values being equal worth, opportunity for all, responsibility and community. In a rapidly changing world with the advent of new technologies, they maintain that it is these values which should guide their political policies rather than a doctrinaire political philosophy and it is these values which will prevent a deliberately pragmatic approach degenerating into mere pragmatism.

Equal worth. The equal worth of every single human being, with its corollary of opposition to any kind of discrimination is clearly crucial to any political party that claims to be morally based. But what does it mean in practice? New Labour is quite clear that it does not mean equality of economic outcomes, with everyone being equally rewarded through massive redistribution, though they do maintain they would like society to have fewer inequalities. More positively it means opportunity for all. Equal opportunity, as opposed to equality as such, has traditionally been a Conservative value. But as R H Tawney put it in his classic work on equality “Equality of opportunity is fictitious without equality in the circumstances under which men have to develop and exercise their capacities”. Again it “Depends not only on an open road but an equal start”. The government has, I think, tried to take this on board, for their stress on education, education, education and their Welfare to Work programmes, are designed to give more people a capacity and a genuine chance of making it in a market economy. The big difference between the Third Way and Neo-Liberal policies, which simply leave it to market, is that they do believe in strong government, in government initiatives and government action. New Labour accepts a market economy in a positive spirit and seeks to work within it and with it. At the same time it has devised policies designed to help more people maximise their opportunities. That said, there is one important similarity with the previous Conservative government and that is the next value, the stress on responsibility. A key feature of the present government, no less than the last, is to shift people away from a dependency mentality; to help people take responsibility for their lives, and hence the programmes designed to get people off welfare and into work as well as the family tax credits, in order to ensure that those people who get into work do get real financial benefits that are not simply clawed back by tax.

The fourth value on which the Third Way of New Labour is based is that of community. Old political debates were polarised between an emphasis upon the State and one on individual responsibility. Socialists wanted more state intervention and Conservatives more individual liberty and personal responsibility. Under the last Conservative government however, there began to emerge something rather different with its reference to what Edmund Burke called the ‘little platoons’ of society : all the intermediate institutions between the State and the individual, such as families, schools, churches, voluntary organisations and professional associations. At the same time there came from the United States the so-called Communitarian Movement with its championing of the role of local communities in upholding values, including naming and shaming of those who failed to conform to those values. However, Tony Blair’s emphasis upon community goes back much further. He was influenced by the priest at Oxford who prepared him for confirmation, a priest who had been influenced by the philosopher John McMurray. John McMurray stressed the inter-personal nature of reality, the fact that individuals cannot be separated from the communities which shaped them. This emphasis upon community, with individuals both contributing to the community and receiving from it, is fundamental to Tony Blair’s philosophy.

On the 31st October 2000 there was a debate in the House of Lords on The Third Way. Lord Howell, a former Conservative minister, said

There is no doubt that there is a new political landscape. To that extent, those who struggled towards something called The Third Way were right to realise that an enormous issue had to be tackled.

This is an important acknowledgement. Huge changes have taken place in the world’s political and economic landscape which make neither neoliberalism nor Social Democracy adequate responses. Any government will need to wrestle with these and The Third Way is a serious attempt to do so. In the same debate Lord Dahrendorf, whilst paying tribute to the government, did not believe that The Third Way really constituted what he called, in Post Modernist jargon, which he was reluctant to use, a narrative. The post war Atlee government and the government under Mrs Thatcher both had a narrative. He does not believe that the political philosophy of the present government qualifies for such a term. But perhaps this criticism is a recognition that the world is very complex and no longer lends itself to simple political philosophies, if it ever did. The political philosophy of the present government may not be as easy to grasp as that of the post war Labour government or Mrs Thatcher but, in a rapidly changing and complex world, it does offer a coherent and consistent approach to political and economic problems. Summing up the debate for the government Lord Falconer said

“At its heart, the approach requires that a strong economy and social justice make up two sides of the same coin. It requires that the poor, the marginalised and the excluded should all be enabled to enter into civil society as actors rather than as mere passive recipients or as victims.”

The key phrase in this is “Actors rather than as mere passive recipients or as victims”. As I have tried to show the present government believes in government initiatives in order that people might indeed be actors, full participants in a market economy as well as the political process. That is something desperately important to achieve. The phrase The Third Way may or may not be adequate to identify and encourage this approach. A few years ago the World Council of Churches talked about “A just, participative and sustainable society”. That could well describe what the present government, and any government, should be trying to achieve. If a short title is necessary perhaps it might be identified as “Empowering socialism”. Some would like to drop the concept of socialism altogether. But the emphasis upon the need to bring about the good of society as a whole is an important truth safeguarded by this phrase. It is a phrase that has been qualified in the past, when Marxist Socialism was replaced, for many, by the concept of Social Democracy. It may be that Social Democracy itself now needs to be replaced by an empowering Socialism.

Whilst thinking of values it is worth noting that even at the height of Neo-Liberal policies in the 1980s there were those who asserted that for a market economy to work properly it must be set within a wider moral framework. This response came particularly from Christian defenders of the market, such as Brian Griffiths, now Lord Griffiths, one of Mrs Thatcher’s chief economic advisers. More recently the Labour peer and academic, Lord Plant, has reminded people of the philosophical basis for this. For example, markets depend on contracts but the efficacy of contracts depends upon the assumption that they will be honoured. As the social thinker Durkehim put it “Not everything in the contract is contractual”. In short, if you make an agreement with a friend to do something, there is an unspoken moral assumption, namely that agreements should be honoured.

If a market economy itself assumes and points to a wider framework of moral values this raises the question whether there are areas of human life that need to be protected from the untrammelled operations of the market. For we should be in no doubt that the market left by itself undermines many of the values and institutions which society values. The point was powerfully made by Anthony Giddens in relation to the policies of the last government. He wrote

Devotion to the free market on the one hand, and to the traditional family nation on the other, is self-contradictory. Individualism and choice are supposed to stop abruptly at the boundaries of the family and national identity, where tradition must stand intact. But nothing is more dissolving of tradition than the “permanent revolution” of market forces. The dynamism of market societies undermines traditional structures of authority and fractures local communities.

The obvious example of this tendency was the way Sunday trading was encouraged in order to increase business and enhance profits, thereby undermining the concept of a communal day of rest and recreation. It could be argued therefore that it is necessary to have certain spheres of existence which are at least to some extent protected from the eroding effects of an unfettered free market. This is at least partially accepted by all political parties in this country at the moment at least in relation to schools and the National Health Service.

Taken together this means that first, the effective operation of a market economy itself depends upon the acknowledgement of certain values, such that contracts should be honoured. Secondly, and even more crucially, it is widely acknowledged in our society that there are certain areas of existence such as basic health care for all and education for all, which are so valuable that they must be protected from the eroding effects of pure market competitiveness. Thirdly, a government, any government, is the government of the whole country and therefore has a responsibility to the common good. This means that however sympathetic it is to business, as the present government is, it also has a responsibility to safeguard the interests of those who are least able to work the system for themselves, those most likely to be driven to the wall by market forces. Fourthly, this government works quite explicitly with the values of equal worth, opportunity for all, responsibility and community. There may be other values which people would like to add but these would seem to be pretty basic to any party wanting to have a moral basis to its policies.

All this means that the question in my title “Can a Market Economy Serve the Poor?” must be pressed for it will be a central concern of any party concerned about the moral economy of our society as well as its material economy.

What distinguishes the present government from any previous Labour government in this country is that it is unashamedly for a market economy and pro-business. It has rejected both nationalisation and equality of outcomes achieved by massive redistribution of wealth. Because of globalisation and the other features mentioned earlier it no longer follows the traditional social democratic road. It believes in government action but government action to enhance people’s prospects of taking part in and succeeding in a market economy.

Data from the Department of Social Security reveals that the number of people living in households on less than half the average income, which is the defining line for poverty, rose from 16.9% to 17.7% during the first two years of the Labour government. In real terms this meant 500,000 more people pushed below the poverty line, mostly pensioners.

During this two years the richest 10% of the population saw their household incomes rise by 7.1% - compared with only 4.3% under the last two years of the Tory government. By contrast the poorest 10% saw their incomes rise by only 1.9% during the last two years.

Recently there has been a national survey on poverty and social exclusion commissioned by the Rowntree Foundation, the most comprehensive and scientifically survey of this type ever undertaken. First of all, it gained from a wide range of people what they considered to be the essentials of life, what “All adults should be able to afford and which they should not have to do without”. Items were defined as necessities which more than 50% of the population believed to be in this category. This meant that a refrigerator, a warm waterproof coat, two pairs of all-weather shoes, a TV and two meals a day were all regarded as essentials and if people were not able to afford them then this would be some indication of poverty. A car, a dressing gown, a daily newspaper, a monthly visit to the pub and so on were not regarded as necessities by 50% of the population and therefore did not count as indicators of poverty. On this basis in 1983 14% of households lacked three or more necessities because they could not afford them. By 1990 that proportion had increased to 21% and by 1999 to over 24%. In terms of numbers 9.5 million people in Britain cannot afford adequate housing conditions and around 4 million are not properly fed by today’s standards.

What all this indicates is that although the standard of living for society as a whole may very well have increased over the last 30 or 40 years the extent of poverty, measured by what people regard as essential, has also significantly increased.

This is literally a matter of life and death. Figures from the Office of National Statistics show that the difference in expectation of life between unskilled and professional workers in 1972 was 5.5 years. By 1996 this difference had grown to 9.5 years. In other words, in that short period, the gap in life expectancy between unskilled and professional workers had increased by 4 years.

Overseas the position is dire. Let me just give a very brief indication. The life expectancy for males in this country is 74.1: in Malawi it is 40.6. In Canada six in a thousand children die before their first birthday: in Ethiopia 625 die in the same period, in their first year. In Malawi only three girls go to secondary school for every 107 in France: and so on.

What this means in very broad terms is that if the world were a hundred people, there would be: 57 Asians 21 Europeans 14 from North and South America 8 Africans 52 would be female 48 would be male 70 would be non-white, 30 white 59% of the entire world’s wealth would belong to only 6 people and all 6 would be citizens of the United States 80 would live in sub-standard housing 70 would be unable to read 50 would suffer from malnutrition 1 would be near death 1 would be near birth only 1 would have a college education

In answer to the question “Can a Market Economy Serve the Poor?” the answer so far must be somewhat pessimistic. I have deliberately not considered the world as a whole in great detail, nor the United States where the figures in relation to the gap between rich and poor are even more startling, but to this country where we have a government consciously seeking to work within the constraints of the market economy and at the same time trying to make that market economy accessible for all. More money has been promised, for pensioners for example, which will perhaps change the figures for those living below the poverty line. But it remains to be seen whether any of this will make any real difference.

One final point. One of the great fallacies for all of us in any age is to think that the prevailing system or philosophy will last forever. But even the most cursory study of history shows how different one age is from another in so many respects. A world in which a market economy is the only option has not yet been with us 20 years. It is highly unlikely, to say the least, that this is the last word which history will have to say on economic systems. Furthermore, if a market economy cannot serve the poor those 500 billion people living at or below starvation level will be banging on the door. So if we think, as I have suggested, that there are in fact values in a market economy that are congruous with Christian faith, and more widely than that with human values that can be acknowledged by all people of good will, then there is an incentive to make that system work for all, and not just for the 75% or so in this country and the 10% or so (which is a guess at a figure) in the world as a whole, who are its main present beneficiaries.

Communism failed. Many believed that traditional Social Democracy has been outmoded by the factors I indicated earlier, not least globalisation. New Labour, working with a market economy as no other Labour government has done before, has not so far succeeded. The challenge remains. Can a Market Economy Serve the Poor?

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Site Copyright: Jeanne Curran and Susan R. Takata and Individual Authors, November 2002.
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