On Market Failure
Sharon March 14th, 2007
Sir Nicholas Stern, the current greatest authority in the world on the economic consequences of global warming visited congress recently, and during his testimony reiterated his phrase that global warming is “the biggest market failure ever seen.” The economists on the panel didn’t much like the claim, of course, because they didn’t think that things like loss of species diversity and extinctions really could come under the definition of market failure. But Stern held his ground on this one.
But, of course, global warming is not an example of market failure in the classical sense: market failures happen when the market does not efficiently allocate goods and services, and when some kind of central organization would work better. But that would imply that the failure to address externalities (carbon and methane emissions included) is a market failure, an error in a functioning system, rather than an integral part of the markets themselves. No wonder the economists don’t like the idea that this is market failure – because the markets are failing because they are operating as intended.
Acknowledging this is an indictment of the system, and a recognition that the problem of global warming is fundamentally a problem of the way markets do business. The markets of growth capitalism operate efficiently because they are able to offload consequences on to the general public. Admitting that externalities are the origin of a big old, planet destroying market failure might make us reconsider whether we should be letting human beings with brains and ethics decide how our economy works rather than magic fairies with invisible hands.
I’d be inclined to argue with Sir Nicholas on one point though – global warming may not be the biggest example, at least if we’re talking about scale. In terms of, oh, potential destruction-of-all-human-life, climate change is the biggies, but in terms of markets creating the largest possible failure to allocate goods and services wisely, in a way that could have been better handled by a six year old with an abacus, that market failure prize would go to the gigantic economic disaster known as industrial agriculture.
Because, of course, it turns out that the most efficient way to grow food is to have a lot of people grow it in small scale organic polycultures. I’ve pointed this out before but even the World Trade Organization now admits that this is true, so there really isn’t that much dispute. Peter Rosset’s research on agricultural scale took place in dozens of countries and in every agricultural model conceivable shows that small scale, polyculture farms of 4-100 acres have a per acre output many times greater than industrial agriculture.
In study after study in journals like Nature, organic agriculture yields the same or better than industrial agriculture. In trials traditional rice paddy cultivation methods outyielded industrial models. Why don’t we know this? Because we’ve been lied to. We’ve been told that GMOs and Cargill are our only hope. But right now, 2 *billion* people on this planet (according to the UN) are living entirely off of small scale organic or largely organic polyculture – this methodology is feeding more people than lived on the planet for most of human history. And they are doing it on marginal land for the most part, having been pushed off the best land by export crops and industrial farming. What could they, what could we do if the best land in the world was used for feeding the people who lived on it?
It also is the case, as again even the evil WTO has to admit, that when agricultural jobs are lost, only about 1/2 of what is lost is made up in the rest of the economy – most of the people displaced from their farms end up much worse off, which is, of course, bad for the economy as a whole. The next billion people added to the planet are almost all going to be urban slum dwellers, and they don’t contribute a lot to the overall wealth of the world. So even if you have no scruples about displacing farmers from their land, it doesn’t make anyone richer or better off to do so.
And it doesn’t make people happier either. Farmers who are conveniently relieved by the industrial economy of the terrible burden of their work have a disquieting habit of killing themselves. It turns out that terrible drudgery was something they loved passionately, and their relationship with their land was central enough to their lives that giving it up destroys them. Whether the farmer lives in Wisconsin or India or Korea or Columbia, they often die or end up impoverished and miserable when you take away their land to feed the growth economy. Again, whether or not you have any ethical scruples about killing people and destroying their relationship with their land, it turns out that it doesn’t make anyone’s lives better, except, perhaps the tiny number of rich people who always benefit. Coincidence, huh?
So we are growing less food than we could, creating less wealth than we could, making more people unhappy about their food choices than we could, plus killing some farmers. That, folk, would be major, large scale, serious market failure. Because in agriculture, for the most part, economies of scale – aren’t. Makes me wonder whether it might not be true for other things. It certainly is true of global warming, where we’re considering sacrificing our own lives to keep the economy going – because we can’t imagine our lives without the magic market faeries to save us.
Here’s the real, sneaky truth. If the free market is willing to kill us, and let people go hungry for its functioning, then human beings have come to serve the markets, rather than the other way around. We’re the slaves of something that has no mind, no soul, no ethics, nothing other than an endless, gaping need for growth. In fact, the growth economy devours its young. Way back when in the middle ages, Christians used to have this thing about interest – they believed that allowing money to make money without anyone doing any work was creating something out of nothing, and that was territory only for G-d, not for man. It allowed money to take the place of G-d. Well, it turns out that the early Christians were right. Not only does it take the place of any other gods, but it isn’t a friendly, long hair and a robe kind of divinity – we’re talking Cthulu with the dripping fangs, people.
It isn’t market failure. It is our failure – our failure to recognize that we have devoted ourselves to a god that will destroy us. And the best solution to that one is a good, rousing, old fashioned, throw-the-golden-calf-on-the-fire rout of the false gods.
Where’s my pitchfork and torch?
Sharon in upstate NY