WHY MARKETS? WELFARE, AUTONOMY, AND THE JUST SOCIETY.

• Author: Dagan, Hanoch
• Position: Book review

RADICAL MARKETS: UPROOTING CAPITALISM AND DEMOCRACY FOR A JUST SOCIETY. By Eric A. Posner and E. Glen Weyl. Princeton and Oxford: Princeton University Press. 2018. Pp. xxii, 293. $29. (95).

INTRODUCTION

Countries around the world are currently experiencing a trend of rising inequality, stagnating economic growth, and political turbulence (p. 276). In their ambitious new book, Radical Markets: Uprooting Capitalism and Democracy for a Just Society, Eric Posner (1) and Glen Weyl (2) argue that we must abandon "well-worn ideas," question existing market structures, and embrace experimentation in order to achieve prosperity and progress (p. 276). As the bold title of their thought-provoking book reveals, Posner and Weyl advance a vision of radical markets: "[Institutional arrangements that allow the fundamental principles of market allocation--free exchange disciplined by competition and open to all comers--to play out fully" (p. xvii). They believe that harnessing the inherent radicalism of markets is key to allowing us to face our most difficult challenges. Moreover, they insist that we must jettison the most fundamental premises of both our private law and our public law, namely, our commitments to private property and to the principle of "one person, one vote" (p. 25).

Consider first the problem and the urgent need for new ideas. According to Posner and Weyl, rising inequality within wealthy countries poses the most pressing problem of our time (p. 4). Rather than identifying such rising inequality as the necessary consequence of accelerated growth, they explain that it is actually closely correlated to increased market power. (3) The pattern of growing inequality coupled with the trend of stagnating growth "pose the same problem for the neoliberal economic consensus that stagflation posed for the Keynesian consensus before it" (p. 11). More generally, the potential of the standard reform proposals across the political spectrum--"increase taxes and redistribute; strengthen markets and privatize; or improve governance and expertise"--is by now spent (p. xv). Our current predicament, Posner and Weyl conclude, stems from a failure of ideas (p. 24). The problem is that "[t]he economic wisdom of left and right did not cut to the core of the tensions in the basic structure of capitalism and democracy" (pp. 24-25). Posner and Weyl thus advocate for radical rethinking and the abandonment of long-held assumptions during this challenging moment (p. 29).

So what do we do? In Radical Markets, Posner and Weyl propose that we get to the root of the problem by understanding how our economic and political institutions work and using that knowledge to formulate a response (p. xvi). In a nutshell, their premise is that competitive markets are the best way to organize society; their diagnosis is that the most important markets are currently either monopolized or nonexistent; and their antidote is creating competitive, open, and free markets (p. xvi). Posner and Weyl argue that such an antidote will "dramatically reduce inequality, increase prosperity, and heal the ideological and social riffs tearing our society apart" (p. xvi). They thus see themselves as reviving the spirit of late eighteenth- and nineteenth-century "political economists" and "Philosophical Radicals" (p. 4), who "saw aristocratic privilege restraining markets as the problem" and hoped to "free markets from the control of feudalistic monopolists" and "create political systems responsive to popular sentiment" (p. 16). Posner and Weyl follow suit by both reconstructing markets, which they believe are obstructed with market power, and introducing markets to areas of human life, notably politics, where markets have the potential to significantly improve people's well-being (p. 27).

Posner and Weyl's reform program, summarized in Part I, is full of original and provocative ideas. Their two most important proposals deal with property and democracy (p. 275) and are the focus of this Review. The former proposal is designed to fix existing markets by supplanting private property with a regime in which people can only be "lessees from society" (p. 62). A person's lease on any given property under this regime terminates when a higher-value user enters the equation and desires that same property, whereupon the lease automatically transfers to that new user (p. 62). The latter proposal introduces to politics a market mechanism, which democracy currently lacks, that would properly account for public preferences (p. 92). The core idea there is to design a voting system that allows people to signal the intensity of their preferences. (4)

There is much to admire and quite a bit to endorse in Posner and Weyl's willingness to rethink the obvious, their resistance of the conventional wisdoms of both right and left, and their imaginative reform proposals. Posner and Weyl are also correct to insist that market power is the--or rather a-nemesis of the idea (or at least a charitable conception) of the market. They are further on point when they imply that reconfiguring our conception of property is key to the construction of proper markets in goods and services and that introducing the intensity of our preferences is key to an amicable idea of politics. Finally, and most fundamentally, Posner and Weyl are right to appreciate that, as a social artifact, the market can be designed in various ways, and that in order to "fix the bugs" of its current form, we need to reenvision the ideal for which the market stands and to redesign it accordingly (p. 286).

Indeed, in order to evaluate Posner and Weyl's proposed reforms we must return to the market's normative DNA. Some of Posner and Weyl's specific proposals are defended on multiple grounds, but others--as well as the final utopia (or is it dystopia?) they draw--are much less ambiguous. Posner and Weyl develop a clear vision of what it means to take a welfarist foundation of the market seriously. Part II of this Review criticizes this vision and its implications for our endowments, citizenship, and, ultimately, agency.

Part III sketches a competing vision of the ideal market, in which the ultimate normative underpinning of the market is our autonomy, rather than our welfare, and highlights some of its implications regarding property, labor, and politics. Like Posner and Weyl's account, this vision is radical both in the sense that it follows some of the legacy of the original Philosophical Radicals and in the sense that it requires us to rethink conventional wisdoms and reconstruct the prevailing mechanics of the market. Moreover, while many specific reforms Posner and Weyl advocate can contribute to this vision of the market--an autonomy-based market should also redress the pitfalls of market power and respect human welfare--other proposals they advance must be rejected because they might efface our humanity. This price, I will argue, is too high even if these proposals may indeed be, as promised, welfare enhancing.

1. RADICAL MARKETS

   The starting point for Posner and Weyl, and thus of this Review as well, is that central planning does not present a viable alternative for organizing large-scale economies (p. 48). This implies that the market economy is the only game in town. But it still leaves us with a crucial inquiry: we must still "ask how markets should be organized" (p. 19). Markets are complicated "social and institutional arrangements through which goods [and services] are regularly produced for, distributed by and subject to contractual forms of exchange in which money and property rights over goods [or rights to services] are transferred between agents." (5) They thus depend on "well-designed and well-enforced rules of the game" (p. 20).

   In their initial presentation of the ideal market, Posner and Weyl argue that the market rules of the game rest on three principles: freedom, competetion, and openness (p. 20). Posner and Weyl's definition of a competitive market--which for them, as we will see, is ultimately the most important part of this trio--is orthodox: it is one in which individuals lack the ability to manipulate prices by exercising market power, so they must accept as a given the prices they pay and receive (pp. 20-21). Their idea of an open market is also familiar: it follows the Radicals' egalitarian conviction that legal and social restrictions are incompatible with a market economy (pp. 21-22). Posner and Weyl's notion of a free market is--as will become clear later on--less conventional and somewhat ambiguous. A free market, they claim, is one in which individuals can purchase any goods provided that they pay a price that sufficiently compensates sellers for the loss of those goods (p. 20).

   Both this understanding of freedom and the specific significance of openness to the ideal of the market need to be, and indeed will be, further interrogated. (6) At this point, it is sufficient to focus on Posner and Weyl's complaint that economists' assumption that markets are perfectly competitive makes little sense (pp. 25-26). They note that most markets for both goods and services involve unique, one-of-a-kind assets; and in markets for relatively standardized goods, a few dominant firms often prevail (pp. 26-27). Either way, "market power is omnipresent and intrinsic to the current institutional structure of capitalism" (p. 27). Market power is capitalism's main disease, as it keeps property from being used in the most productive manner and thus both restricts productivity and growth and decreases employment (p. 255).

   The key remedy for this predicament is to eradicate the institution of private ownership. Since private ownership of any nonhomogenous asset may impede allocative efficiency (p. 38), we need to reconstruct markets so they are "competitive by design" (p. 49). More precisely, we must discard private property and adopt in its stead a regime that partly transfers property's "two most important...